KUALA LUMPUR: The role of Bank Negara Malaysia (BNM) in managing inflation and the ringgit through the overnight policy rate (OPR) is nearing completion, according to economists.
UOB senior economist Julia Goh (pix) stated that at 3%, the OPR is approaching a neutral level where the rate is not too restrictive but sufficient to keep a handle on inflationary risk.
“The bulk of the work for Bank Negara as far as the interest rate is concerned is done. So whatever is left to do, they can take their time,” she told reporters at UOB Asset Management Mid-Year 2023 Outlook Forum today.
She mentioned that following the 125 basis points hike, including the latest 25 basis points hike in May, there is room for a pause.
“The central bank should carefully evaluate the current trends resulting from the impact of the previous rate hike on the economy before determining the next course of action,” she said.
Goh also noted that the latest economic data indicated a decline in manufacturing and exports. In addition, China, the country’s major trade partner, has also experienced a comparatively weaker economic recovery which is expected to have a spillover effect on the economy as well as the ringgit.
“Taking all those factors into consideration, plus, although core inflation is still sticky, Malaysia’s headline inflation has been moderating. Private consumption has also been moderating and normalising, meaning after reopening, after all the pent up demand, people are now slowing their consumption, partly because cost of living has increased,” she said.
In addition, economics Professor Tan Sri Dr Azlan Ghazali stated that the weakness of the ringgit is less influenced by the OPR rate and more attributable to structural factors, specifically the policies implemented by the government.
“Many of us are overly focused on the day-to-day fluctuations of the ringgit. Not many are looking from year-to-year or period-to-period. So my concern is whether this movement in the exchange rate is a reflection of the interest rate differential per se, or is it telling us more than that? So, I will say here that we are putting too much on Bank Negara. If it is a structural matter, the answer is in Putrajaya, not in Bank Negara,” he said.