No aggressive hike on OPR rate, says governor


BANK Negara Malaysia (BNM) is unlikely to take an aggressive stance in adjusting the Overnight Policy Rate (OPR) to return to pre-pandemic levels, said governor Tan Sri Nor Shamsiah Mohd Yunus (picture).

She said the monetary policy stance remains accommodative and supports economic growth in a stable price environment.

Therefore, Nor Shamsiah said that any adjustment to the setting of monetary policy in the future will be implemented in a controlled and gradual manner.

“For the OPR to return to the pre-pandemic level of 3%, we (now) are at 2.25%, so this means that the OPR has to increase by 75 basis points (bps).

“We have stated that any adjustment to monetary policy will be gradual and controlled. So, changing the OPR by 75bps this year will not be consistent with that,” she said in a press conference during the second quarter of 2022 announcement in Kuala Lumpur on Friday.

When asked whether BNM will maintain the OPR increase of 25bps at the next monetary policy committee (MPC) meeting, Nor Shamsiah said the MPC will continue to assess the changing environment and its impact on the overall outlook for inflation and domestic growth.

She noted that an increase of 50bps is not consistent with a controlled and gradual adjustment.

She also added that so far, the national economy is seen to be absorbing the effects of the OPR increase well.

BNM has previously raised the OPR on May 11 and July 6 by 25bps each to 2.25% compared to the previous record low of 1.75%.

Analysts and local investment banks have been reported saying that BNM will raise the OPR by at least 25bps by year-end, tracking the US Federal Reserve’s 75bps rate hike on July 27.

The central bank is expected to raise the OPR by at least 25bps during each of its remaining two MPC meetings this year, slated for Sept 7 to Sept 8 and Nov 2 to Nov 3.

Commenting further, Nor Shamsiah said it is important to remember that despite the OPR adjustments, monetary policy would remain accommodative this year to support the economic recovery.

“I know there’s been a lot of interest in the recent monetary policy adjustments. I would like to reiterate that the OPR was first increased in May as it was deemed that the large support needed during the pandemic was no longer warranted.

“This view remains unchanged as the economy continues on its recovery path with a growth of 6.9% in the first half of this year,” she said.

“So, it is very clear that we are no longer in crisis. Growth will continue to be supported by firm domestic demand, amid better labour market conditions, recovery in tourism activity and improved investment activity and prospects,” Nor Shamsiah added.

With the recovery in domestic demand, Nor Shamsiah said that Malaysia is seeing some early signs of demand-driven inflation.  

As such, the recent OPR adjustments would also pre-emptively manage the risk of excessive demand on price pressures.

“This is important because whenever the inflationary pressures are excessive, it is more damaging to the economy and causes even deeper hardships for the people compared to a gradual increase in policy rates.

“As such, the gradual adjustments in the OPR are necessary to avoid the need for stronger measures in the future, such as faster and steeper increases.  

“We obviously do not want to be in such a position,” she stressed.

Nor Shamsiah said BNM will continue to conduct monetary policy in order to achieve the country’s goal of price stability and sustainable economic growth over a longer term.  

She added that this is in the interest of the economy and the wellbeing of the people instead of having a boom-and-bust economic cycle.