Bank Negara should retain interest rates, observers say

PETALING JAYA, Dec 18 — Bank Negara Malaysia (BNM) should not follow the US decision to raise interest rates, economists said yesterday.

Universiti Malaysia Sarawak faculty of economics and business dean Prof Dr Shazali Abu Mansor said the central bank should resist the urge to hike rates.

“Bank Negara should look at other factors, including consumer sentiment and the surge in costs of living to maintain rates. We do not have to follow the US. With what is going in the country right now, we should retain our interest rate (overnight policy rate),” he said.

He said if BNM decided to increase rates, the cost of borrowing will be higher and this will affect Malaysians already struggling with the high cost of living.

Shazali said the move by the Fed was not likely to weaken the ringgit but will rather will stabilise it.

“The volatility of the ringgit was caused by the uncertainty resulting from anticipation of the US monetary policy change. With the decision, the ringgit will stabilise.”

He added that as the announcement had been expected, the market will be able to absorb the impact.

Universiti Malaysia Sabah faculty of accountancy, business and economics senior lecturer Prof Dr Syed Azizi Wafa Syed Khalid Wafa, said any increase in interest rates will not help attract investors, especially with the perception of political instability as a result of the 1MDB issue.

“It should be business as usual. What we should do now is to focus on strengthening our economy and finding solutions for the political situation in the country,” he said.

On the US interest rate hike, he said it would have a minor impact on Malaysia with the US dollar expected to strengthen against the ringgit.

“Our exporters are likely to gain. However, imported products from the US will cost more, which will affect the average Malaysian consumer,” he said.

Economist Tan Sri Dr Ramon Navaratnam offered an opposing view — that Malaysia should consider raising interest rates in light of the US plan to gradually hike rates.

“We should seriously consider our position. If the ringgit slides further, then there could be capital outflow.

“Investors will go to countries with more attractive interest rates. The gap will widen and there will more pressure on the ringgit,” he said.

He added that a slight rise in interest rates may not have an impact on the economy.

He said BNM should come up with a strategy quickly on the matter.