Bank Negara Malaysia’s decision to increase the Overnight Policy Rate by 25 basis points to 2.5% is hurting everyone and will in turn cause more harm to our economy than do good.
This is the third time BNM increases interest rate this year, raising it from 1.75% in the beginning of this year to 2.5%. This 0.75% interest rate increase will hurt all those people having housing loans and other bank loans.
As an illustration, for any person having a housing loan of RM300,000.00, a 0.75% increase in interest rate means that an increase of RM2,250.00. In other words, the housing loan borrowers will have to pay an additional RM187.50 per month because of the interest rate increase by the Government this year alone.
BNM’s increasing the interest is not only hurting the general borrowers of bank loans, it does not help to curb inflation in Malaysia.
Before this, BNM has increased interest rates twice this year. Yet the country is still experiencing high inflation rate. That is because our current inflation is due to supply-push factor, not so much as demand-pull factor. Increase in prices of raw materials, freight charges, fertilizers, animal feed, food prices and the depreciation of Ringgit are the main contributors to inflation in our country.
Increasing interest rates will not help to bring down these prices. On the contrary, it will slow down our economy and hurt businesses and the general house purchasers.
Bank Negara Malaysia’s latest report shows that the Malaysia’s household debt-to-Gross Domestic Product (GDP) ratio as at December 2021 was 89%. This is extremely high if compared to other neighbouring countries in the region. As at December, 2021, Singapore’s household debt to GDP ratio was 69.7%, Indonesia’s was 17.2 % and Philippines’ was 9.9%.
In layman’s terms, most households in Malaysia have bank loans and thus the increase in OPR means that all these families will have to pay more in their monthly instalments to the banks.
Therefore, I call on BNM to reconsider its decision to increase the OPR.