KUALA LUMPUR: A stable interest rate environment with Bank Negara Malaysia’s (BNM) Overnight Policy Rate (OPR) remaining at 3% throughout 2024 will bolster ringgit recovery and stimulate investment activities, according to economists and analysts.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said that keeping the OPR steady would certainly help maintain a reasonable level of interest rate differentials with the US rates which would help influence the value of the ringgit against the US dollar.
“More importantly, a steady OPR will promote a predictable economic environment which can stimulate investment activities,” he told SunBiz.
He said the OPR decision is premised on the domestic economy and BNM continuing to steer their monetary policy based on the inflation and growth dynamics and how the two macroeconomic variables can affect the domestic economy.
“Last two years, the focus was on inflation and they have succeeded in bringing down the inflation rate from 3.3% in 2022 to 2.5% in 2023 when the BNM decided to raise the OPR from 1.75% to 3.00% during the same period,” he said.
AmBank (M) Bhd chief economist Firdaos Rosli said maintaining a steady OPR at 3% in 2024 will reinforce investment and business predictability.
“I noticed that loan application tumbled during BNM’s policy normalisation period but it has been growing steadily since the “hawkish pause” to date,” he told SunBiz.
UOB Global Economics & Markets Research said the continuation of a steady OPR will help narrow the negative gap with US interest rates and support the MYR recovery by year-end.
Consequently, it anticipates the USD/MYR exchange rate to be at 4.75 in Q1’24, 4.65 in Q2’24, 4.55 in Q3’24, and 4.50 in Q4’24.
Meanwhile, ECM Libra Group Bhd senior business development manager Vishal Sidhu suggested increasing the OPR to 3.3-3.4% to combat inflation, noting that China and Singapore are hovering at 3.4-3.5%.
“Over a six-month period, the ringgit has declined by 6-7% against the Indonesian rupiah, and it has also weakened by 3% against the Chinese yuan, and by 4-6% against the US dollar and the Singapore dollar.
“Bank Negara Malaysia has often prioritised other issues over strengthening the currency. A strong currency is both intrinsically valuable and symbolically important for investors, as it reflects market stability and confidence,” he said.
However, he acknowledged that the OPR at the current 3% level is good for risk management and encourages business growth as it positions Malaysia’s rate among the lowest 20 in the world.