The announcement by Bank Negara to increase the Overnight Policy Rate (OPR) by another 25 basis points (bps) to 2% indicates that inflation and rising prices will be a bigger economic challenge than sustaining robust economic recovery. However, sustainable economic growth for 2022 could well be impeded by a weak ringgit and structural problems relating to acute worker shortage in key sectors of the economy as well as lack of institutional reforms that promote transparency and accountability.
The impact of a weak ringgit, particularly dipping to historic lows against the Singapore dollar, is unexpected with rising global prices in oil and basic commodities such as oil palm. At the same time, economic growth is spotty with many key sectors such as tourism, hotel, entertainment and recreation as well as SMEs still struggling to survive to reach the 2019 level. For the public, rising prices are not mitigated by rising wages.
The government needs to offer assistance to these key sectors and quickly overcome severe labour shortfalls as well as address the impact of rising prices caused by supply shortages as well as the weakening ringgit. Whilst the government has refused to listen to economic suggestions put up by the opposition, there is still no real economic policy planning apart from allowing the withdrawal of EPF savings of up to RM10,000, that has pumped more than RM40 billion into the economy.
This short-term measure creates an illusory feel-good factor that addresses the urgent financial needs of the public that has not enough money to spend and manage rising food prices. However, what is the government planning to do when the RM10,000 is used up or the RM40 billion EPF-induced injection dries up?