KUALA LUMPUR: Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz says the government cannot interfere with Bank Negara Malaysia's monetary policy, stressing that it will be "fatal" for the central bank to rely on government decision.
Tengku Zafrul added that the central bank was "independent of the government" and that government intervention in monetary policy decisions would affect financial market integrity.
"We cannot coordinate by law. It is also important when it comes to the trust in the markets. If there is any manipulation or interference from the government in any compound monetary policy decision, that will undermine the integrity of the markets as well," Tengku Zafrul told reporters at the launch of edotco Group's sustainability blueprint and report 2021 here today.
He was commenting on the seemingly contrasting measures by Bank Negara and the goverment in reining in inflation.
Bank Negara continued implementing a hawkish stance by raising its key interest rate on Wednesday - its second for the year after May's 25 basis point (bps) hike - to curb spending.
But at the same time, the government was putting more money in rakyat's hands to boost domestic consumption.
According to Tengku Zafrul, Bank Negara had increased the Overnight Policy Rate (OPR) by another 25 bps to 2.25 per cent due to inflationary pressures which continued to increase to 2.8 per cent from 2.4 per cent previously.
He said rising inflation occurred all over the world including developed countries, some of which had exceeded nine per cent.
"Bank Negara's action is (also) to curb the outflow of investment from the country which will cause the ringgit to fall further."
If the OPR remained low at the previous level, investors might shift their investments from Malaysia, he added.
"The ringgit is falling, the price of goods will go up because we import 60 per cent of our raw materials. This (OPR) increase is also based on the latest regional developments. Basically, I feel our monetary policy is still competitive. The current OPR is still low compared to the pre-pandemic rate of three per cent," he said.
Tengku Zafrul said the government was conscious of the impact of the hike.
"We will continue to monitor this. We have seen a strong first quarter gross domestic product growth at 5.0 per cent. The government is optimistic that this will continue for the second quarter of 2022," he added.