They say it will keep borrowing costs low, making it cheaper to get loans for business expansion or investment, thus supporting economic growth.
The ringgit closed at 4.7050/4.7075 against the greenback yesterday, up from Tuesday’s close of 4.7160/4.7190.
This was the fourth trading day in a row that the currency has made gains against the US dollar.
At its last monetary policy committee meeting last Thursday, Bank Negara Malaysia (BNM) chose to keep the OPR unchanged.
Socio Economic Research Centre executive director Lee Heng Guie said a low interest rate means low borrowing cost for both businesses and households.
“While businesses will not have to pay more for expansion and investment, it also means that households will not have to fork out more for their loan repayments,” he told FMT Business.
Lee said the current interest rate is deemed appropriate to sustain domestic demand amid steady inflation, thus ensuring continued economic growth.
He pointed out that Malaysia still needs an accommodative monetary policy and reasonable lending rate to support growth given the downside risks to the global economy.
Interest rates in Malaysia are among the lowest in Asean. Among the major economies in the region, the Philippines has the highest rate at 6.5% followed by Indonesia at 6.25% and Vietnam at 5%.
Thailand has the lowest rate at 2.5%, while Singapore has fixed its rate at 3.51%.
Professor of economics at Sunway Business School Yeah Kim Leng said the decision to keep the OPR at its current level will help businesses and consumers maintain their respective activities at the current pace.
“In other words, the interest rate is currently at the appropriate level to achieve the targeted growth of 4% to 5% while keeping inflation in line with long-term trends,” he told FMT Business.
However, there are challenges going into the second half of 2024 and beyond.
Lee said the implementation of the fuel subsidy rationalisation plan, the proposed salary increase for civil servants and the introduction of the Flexible Account by the Employees Provident Fund have the potential to lead to a rise in inflation.
“Should there be any demand-pull price pressure, BNM may have to reassess its stance on monetary policy going into 2025,” he added.
Economic growth in Malaysia dropped to 3.7% in 2023 from 8.7% in 2022, dragged down by export contraction and moderating consumer spending.
Lee noted that Malaysia’s monetary policy is independent of the US Federal Reserve as BNM’s priority now is to sustain steady economic growth while keeping close vigilance on inflation.
On Tuesday, Fed chair Jerome Powell indicated that the US central bank’s next interest rate move is unlikely to be a hike, describing the reading as more mixed than hot, given that prior-period data was revised lower.
The Fed has pushed its key rate to a 23-year high of 5.3% to bring down inflation, which peaked at 9.1% in June 2022.