Further OPR cut may push inflationary tendencies, say think tank

BNM has maintained the Overnight Policy Rate (OPR) at 1.75 per cent at its first Monetary Policy Committee (MPC) meeting today. — Picture by Ahmad Zamzahuri
BNM has maintained the Overnight Policy Rate (OPR) at 1.75 per cent at its first Monetary Policy Committee (MPC) meeting today. — Picture by Ahmad Zamzahuri

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KUALA LUMPUR, Jan 20 — The Center for Market Education (CME) has hailed Bank Negara Malaysia’s (BNM) decision to keep the benchmark interest rate unchanged, saying a further cut may have pushed inflationary tendencies.

BNM has maintained the Overnight Policy Rate (OPR) at 1.75 per cent at its first Monetary Policy Committee (MPC) meeting today.

“I think it is good that BNM decided not to touch the interest rate.

“In fact, the OPR at the current level is already pretty low and a further cut may have pushed inflationary tendencies, making the purchasing power to be compromised during an already difficult moment,” CME chief executive officer Carmelo Ferlito said in a statement today.

According to him, Malaysia needed purchasing power to be restored and savings to be rebuilt in order to grant the creation of funds available for investment.

Meanwhile, Ferlito also remained sceptical over the general perspective that further OPR cut would be able to stimulate a country’s economic activities.

“Well, in the traditional way to think, a cut is intended to stimulate the economy, but I doubt that at the present level of the OPR, as there would not be a significant difference between keeping the rate where it is or cutting it further,” he said.

He noted that any reduction in the OPR would be seen as a “signal” among market players, and its consequences depend very much on how the signal is interpreted by the market participants.

“If it is interpreted as a signal of nervousness, then investors will remain in the ‘wait and see’ mode.

“Not to mention that too low an OPR could eventually incentivise malinvestment (bad investments),” he said.

Ferlito pointed out that what policymakers often disregard is that the key determinants for investment is profit expectations rather than the OPR.

“We have seen this in many European countries, where a decade of extremely low rates has not brought any development.

“We should act in the direction of creating confidence to boost profit expectations, otherwise, no matter how low the interest rate is, it won’t generate any positive effect,” he said. — Bernama

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