KUALA LUMPUR: Malaysia's decision to maintain its key interest rate comes as a big relief to individuals and businesses who are grappling with rising living costs and the weak ringgit, economists said.
The decision to keep Bank Negara Malaysia's Overnight Policy Rate (OPR) unchanged at 3.00 per cent offers stability and relief to individuals, while providing a conducive environment for businesses to survive and thrive in the face of economic challenges.
Economists contacted by the New Straits Times said it also reflects Bank Negara's commitment to prioritising people's well-being and support sustainable economic development.
They, however, said by leaving room for a potential increase in the OPR, the central bank acknowledges the importance of keeping a close watch on core inflation, which may be influenced by policy shifts related to subsidies and price control measures.
Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said people are already burdened by the rising cost of living, even though the core inflation rate remains under control.
Overall inflation rate eased to 2.8 per cent in May.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said Bank Negara is extremely cautious on how they would steer the monetary policy at a time when the external sector has been increasingly challenging.
Afzanizam said the persistent decline in Malaysia's Purchasing Manager Index (PMI) globally indicates that businesses have become wary of their revenue outlook.
"This could prompt them to relook at their business strategy including the hiring plans as well as capital expenditure.
"In a way, the outlook for the labour market and price pressures are expected to be subdued going forward. I think Bank Negara might want to keep the OPR steady at 3.00 per cent throughout 2023," he said.
Universiti Putra Malaysia School of Business and Economics senior lecturer Mohamad Khair Afham Muhamad Senan opined that another increase will affect consumer's decision to spend less. This will consequently affect the business's decision to invest less.
"Taking into account the continuous hike in interest rate for the past year, another increase in OPR will surely become a shock for Malaysians," he noted.
Independent analyst Julian Suresh Sundaram said Bank Negara seems to be aware that it cannot alter the ringgit's trajectory as it, along with other regional currencies and especially China's renminbi and Japanese yen, have been losing ground against the US dollar.
"Maintaining a slightly accommodativestance will support the bank's positive economic outlook and support equitymarket gains when the Dollar turns lower leading to the ringgit gains.
"It also shows the central bank's confidence over the direction of inflation and thisview is supported by falling oil prices and global inflationary trends turninglower, although remaining at elevated levels," he said.
Bank Islam Malaysia Bhd chief economist Firdaos Rosli said any further movements of the OPR following the policy normalisation must be gradual and data-driven.
"The rate pause is in line with Bank Islam's expectations. We agree with (Bank Negara's) statement on the upside and downside risks to Malaysia's growth in the near term, although the overall balance of risks has not changed much since the beginning of the year," he added.