FOR the fifth time, Ajoi reads aloud what the finance minister said about the hike in the Overnight Preferred Rate (OPR) from 2.75% to 3%, after keeping it low at the onset of Covid in 2020. 

“It still doesn’t make sense to me,” he said. 

“Tell me again how my giving more of my money to the bank is helping me, pray tell?” 

We could tell that Ajoi was really exasperated because he descended to his pseudo-Shakespeare-speak. 

We don’t blame him. The OPR hike just increased his house payments by quite a bit. 

Earlier in the week, Finance Minister Datuk Seri Anwar Ibrahim, who also happens to be the prime minister (PM), told Parliament that the OPR hike was to make people save more and spend less. 

Well, what the finance minister actually said was that higher OPR rates will help ease some of the pressures that are contributing to price increases. 

And, going by the conventional wisdom of banking and monetary manipulations that economists have at their disposal, Anwar is of course completely correct. 

The textbook says that higher OPR will increase borrowing costs for individuals and businesses. This discourages borrowings for spending on whimsical things like shiny new iPhones and live concert tickets, and will potentially slow down consumer spending and business investments. 

Also, the textbooks say raising interest rates is often done to control inflation because when borrowing gets more expensive people will spend less. And it can help stabilise prices and maintain purchasing power of the ringgit.

In theory, higher rates can make savings more attractive and this will in turn make individuals save more and reduce consumption. However, that is all and good in theory, but people are questioning the human costs of such hikes at this time. 

The theory is good, but all of it is lost on people who say that it is a tough hit at this time. 

“It’s a low blow man,” Ajoi said. 

One of our Breakfast Club members reminded Ajoi to count his blessings. 

“I tell you, we once had to pay 8% interest on car loans and put down 20% in cash to buy a car. 

“But why do I feel that whenever the government does something that it says is good for people, they are not talking about me?” 

The OPR hike has also made many Malaysians beside themselves in anger. 

Lim Guan Eng, who used to be the finance minister not too long ago, said the OPR hike only benefits the banks and will have added risk of cooling down economic growth. 

The uproar has resulted in Bank Negara Malaysia (BNM) coming up with explainers. 

The governor sent out talking points that deflects some of the misplaced anger of the people towards banks but most of what she said fly past people who don’t understand or care about the macro side of this. 

Maybe BNM is looking ahead of the curve and worries about higher inflation in the future as consumer demand grows stronger as jobs become plentiful and the economy grows tomorrow. 

The OPR hike affects regular customers of banks — the working-class plebeians who just want a bit of the good life. They have loans and a higher OPR burns the cash in their pockets. 

Yes, it will benefit people who have fixed deposits but these are rarer than hens’ teeth and because most Malaysians are burdened by loans. Don’t know whether this is part of the government’s plan to tax the rich, but it is squeezing the middle-income group — that bit of demography caught in the middle of being deemed too well off to qualify for government handout programmes — but at the same time too poor to afford to lose what little they already have. 

“Anwar said the hike will make people more prudent in spending and will encourage them to increase savings,” said our friend. 

“Maybe that applies to people who fell over themselves buying out Coldplay tickets, but I tell you the majority of Malaysians aren’t like that.” — pic Bernama

• ZB Othman is an editor at The Malaysian Reserve. 

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• This article first appeared in The Malaysian Reserve weekly print edition