Bank Negara Malaysia increases OPR by 0.25% to 3%

Bank Negara Malaysia (BNM) has increased the overnight policy rate (OPR) by 0.25% to 3%, the central bank announced after its monetary policy committee (MPC) convened on May 3, 2023. This is the first time this year the OPR has been hiked after being kept at 2.75% twice in January and March.

According to The Edge, BNM’s decision came as a surprise to economists who predicated the OPR would be maintained to further assess the impact of four straight increases – each by 0.25% – in 2022.

Referring to BNM data, the OPR was at its highest at 3.5% from April 26, 2006 to November 24, 2008. At 3%, the OPR is now back to its pre-pandemic level seen from May 7, 2019 to January 22, 2020. With the update, the ceiling and floor rates of the corridor of the OPR are now at 3.25% and 2.75% respectively.

“With the domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalise the degree of monetary accommodation. With this decision, the MPC has withdrawn the monetary stimulus intended to address the COVID-19 crisis in promoting economic recovery,” BNM said in an official statement.

“In light of the continued strength of the Malaysian economy, the MPC also recognises the need to ensure that the stance of monetary policy is appropriate to prevent the risk of future financial imbalances. At the current level, the monetary policy stance is slightly accommodative and remains supportive of the economy. The MPC will continue to ensure that the monetary policy stance remains consistent with the outlook of domestic inflation and growth,” it added.

Car loans are impacted by the OPR, with higher rates resulting in hire purchase loans becoming more expensive and be harder to gain approval. This will impact car sales, with the Malaysian Automotive Association (MAA) saying in January it expects total industry volume to decline this year after a record 2022.

“Headline inflation continued to moderate, but core inflation has persisted above historical averages. For most central banks, the monetary policy stance is likely to remain tight. The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and a sharp tightening in financial market conditions including from further stress in the banking sector,” BNM also noted.

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