What do BNM rate hikes mean for M'sian households?

KUALA LUMPUR: Bank Negara Malaysia (BNM) raised the overnight policy rate (OPR) by 25 basis points to 2.5 per cent today, the third consecutive rate hike of the year.

For certain households, this would mean paying more for interest payments and servicing of loans and debt if they are tied to floating interest rates, says United Overseas Bank (UOB) Economist Julia Goh.

“On the other hand, if the household has high savings, then they will also be rewarded because they will earn more for their deposits,” she added.

BNM previously raised the OPR from a historic low of 1.75 per cent to 2 per cent in May.

In July, it raised the OPR by another 25 basis points to 2.25 per cent.

The central bank cited Malaysia’s transition to endemicity and policy measures as reasons for the country’s strong growth performance in the second quarter of 2022.

According to Goh, Malaysia’s Q2 growth was one of the strongest in the region.

However, she noted that it would be impacted by ongoing global challenges, such as the energy crisis in Europe and China’s COVID-19 restrictions.

“Domestically in Malaysia, there are drivers like the reopening of the economy and tourism.

“People are still going out to spend but there are also issues faced by businesses like high cost and labour shortages. Those issues still linger,” said Goh.

Having raised interest rates three times since May, she expects BNM to take a “temporary pause” for its Monetary Policy Committee meeting in November.

This is to reassess how households and businesses have absorbed the rate hikes, along with how the economy and inflation situation evolves.

“Any changes depend on how the economy and prices move from here onwards, but ultimately BNM’s goal is to keep inflation low and stable.”

Commenting on the country’s inflation outlook moving forward, Goh expects inflation to rise further but to peak within the third quarter.

“Beyond that, I think the biggest uncertainty would be how the government decides to introduce the targeted fuel and electricity subsidies,” she said, adding that more details on this should be revealed during the tabling of Budget 2023 on October 7.