Pacific Research Center of Malaysia principal adviser Oh Ei Sun said BNM has to weigh between controlling inflation, which calls for higher interest rate, and stimulating the economy, which calls for a lower interest rate.
“BNM has decided that economic stimulation remains the priority over bringing down inflation, hence the OPR was not raised,” Oh told FMT Business.
He said the positive is that this will not increase the cost of doing business further and will, therefore, maintain momentum for economic recovery.
“However, the downside is inflation will be hard to bring down, and the ringgit’s value will (likely) remain low,” Oh added.
Bait al-Amanah research director Benedict Weerasena said maintaining the rate at 3% ensures the OPR level remains accommodative and supportive of economic growth, in light of the slightly slower growth momentum and easing inflationary pressures.
“It is not about economic stimulation, but sustainable economic growth,” he said, adding if BNM wanted to further stimulate the economy, they could have lowered the OPR, but decided to maintain it instead.
“At 3%, BNM will have the policy space needed to reduce the OPR if or when a recession hits in the future, similar to what was done during the pandemic,” Weerasena told FMT Business.
This healthy buffer is essential to prepare for the need to stimulate the economy in an increasingly challenging future, he added.
Economic stability the main priority
Malaysia University of Science and Technology economics professor Geoffrey Williams said economic stability is the main priority at the moment.
“Consistent with its mandate, BNM has noted that price stability has improved as inflation is slowing and will continue to slow for the rest of the year,” he said.
He noted that the financial sector is sound and economic growth is steady. “The decision to hold rates is the right decision for the right reasons,” he said, adding this will be positive for the economy since there are some headwinds from the global growth.
“It will help businesses and consumers to be more confident and stable, and will allow policy attention to switch to long-term structural issues,” he added.
“The decision to hold rates will support this increasingly stable environment,” he concluded.
On May 3, BNM had raised the OPR by 25 basis points (bps) from 2.75% to 3%, after hitting the pause button at the monetary policy committee’s meetings in January and March. This brought the OPR to its pre-pandemic level of 3%.
Prior to that, BNM had raised the OPR by a total of 100bps between May and November last year.