Ex-banker questions BNM governor on OPR hikes

A former banker has questioned Bank Negara Malaysia (BNM) governor Nor Shamsiah Yunus over her defence of the recent move to raise the overnight policy rate (OPR) by 25 basis points to 3.00%, just below the pre-Covid level of 3.25%. 

Nor Shamsiah had described the central bank's monetary policy as pre-emptive instead of premature, and referred to claims about economic growth and the effect that the OPR hike would have on borrowers. 

"It will take much bigger and faster OPR increases to bring inflation down once it has taken root – as we can see in other countries," she said. 

Inflation in the first quarter of 2023 had averaged at 3.6%, compared to 3.9% in the previous quarter.

Muhammad Zahid Abdul Aziz however compared such methods of stimulating the economy to moving house in order to change a lightbulb.

"Since when do companies make decisions based on the size of interest?" Zahid, formerly of Bank Islam, said to MalaysiaNow.

"Does anyone ever rush to the bank to borrow for their company when interest rates are low?"

Zahid, who is part of the Movement for Monetary Justice, said that the increase in interest rates would instead cause companies to lay off workers, negatively affecting the utilisation rate. 

"Why ignore killing inflation through the infinitely faster way of directing money to the real sector?" he added. 

"But that is not favoured by bank owners." 

BNM has raised the OPR several times since dropping it to its lowest level ever of 1.75% during the Covid-19 pandemic in 2020. 

Former finance minister Lim Guan Eng recently criticised the hikes, saying they would only benefit the banking sector. 

Prime Minister Anwar Ibrahim however defended the central bank's move, saying it would ensure a healthy and growing economy. 

Zahid, an expert in Islamic finance, said the financial system was designed to prioritise the interest of bank owners. 

"The utter miscomprehension of economics by political leaders on both sides of the divide is very sad," he added. 

Nor Shamsiah had also said that the ringgit value against other currencies was determined by the market. 

For his part, Zahid said that the ringgit was unrelated to the OPR. 

"The fluctuations depend on the demand for the ringgit by outsiders, and whether we export a lot of goods, attract many tourists or face speculators," he said.