Insight - Time to unwind easy-money stimulus

Good timing: A worker preparing to sell vegetables at a wet market in Kuala Lumpur. The pre-emptive rate hike by Bank Negara is timed on the stronger- than-expected economic growth of 5% year-on-year in the first quarter of this year. — Bloomberg

BANK Negara has raised the overnight policy rate (OPR) by 25 basis points (bps) to 2% on May 11, marking the start of interest rate normalisation after two years of ultra-monetary accommodation to lift the battered Malaysian economy out from the Covid-19 pandemic. During the pandemic, the OPR was reduced by a cumulative 125 bps to a historic low of 1.75% to stimulate the economy.

It’s time to unwind the excessive monetary accommodation before we reach a point where the risks of monetary expansion outweigh the benefits of cheap credit in an environment of high costs.