Get a free trial on EXPERT STOCK SCREENER!
The 25 basis points hike in the overnight policy rate (OPR) came as a suprise to the industry but many see this as a move to keep inflation in check and to slow down the ringgit's appreciation. This is also good news for jitter exporters who will be able to adjust to the continuous strengthening of the local currency. Bank Negara Malaysia today increased the benchmark OPR to three per cent from 2.75 percent, up 25 basis points, while the statutory reserve requirement (SRR) will rise to three per cent from two per cent, effective May 16. MIDF Amanah Investment Bank Bhd Chief Economist Anthony Dass said it was obvious that the central bank did not want to fall behind the curve as regional peers had hiked up interest rates. "The real shocker is the increase in OPR. The way we look at it is that BNM does not want to be behind the curve. "Most countries had increased interest rates and Malaysia was still behind. If we stay put at the old level and only increase later when inflation had already spiralled, it will only result in sharp rate hikes," he told Bernama today. The central bank had raised the OPR thrice this year while gradually reduced the SRR since December 2008 to one per cent in March 2009. Recent data by the Statistics Department showed that the consumer price index for March increased 3 per cent to 102.4.
Meanwhile, Affin Investment Bank's Head of Retail Research Dr Nazri Khan said: "The hike in OPR reflected that the BNM was giving more weight to inflation than economic growth and they want to cushion the ringgit appreciation at a slower phase". On financial institutions' possible reaction to the hike, Nazri said banks would adjust but accordingly as competition was stiff in the market. "The banks will follow-through but probably they will not pass the full quantum to their customers all at one go," he added. -- Bernama