Decision to gradually adjust OPR rate not meant to benefit any party, says Anwar

KUALA LUMPUR: Bank Negara Malaysia's decision to gradually adjust the overnight policy rate (OPR) rate was aimed at ensuring that it will remain at a reasonable level and according to macroeconomic conditions, says Datuk Seri Anwar Ibrahim.

The Prime Minister said that the move was not meant to benefit any party, and is not part of the Monetary Policy Committee's deliberation.

He added although banks may benefit from loan repayments when the OPR increases, they would also have to pay higher interest rates, which increases their funding costs.

"To ensure that the country's economy continues to grow at a sustainable rate and to control inflation, Bank Negara Malaysia acted early in adjusting the OPR in stages from May 2022.

"The move was important to ensure that the OPR was at a reasonable level and it is according to the macroeconomic conditions.

"If the OPR continues to be at a level that is too low for too long while the economy is strengthening, it would lead to extremely high spending and borrowing," said Anwar, who is also Finance Minister, said in a parliamentary reply to Lim Guan Eng (PH-Bagan), who had asked the Finance Ministry to explain the rationale behind Bank Negara increasing the OPR rate by 0.25%, which he said would only benefit the banking sector.

Anwar explained that when the country's economy faced some challenges of recession due to Covid-19, the OPR was reduced from 3% to 1.75% in 2020, the lowest in the country's history.

He said economic activity then gradually improved and returned to normal as the country entered the transition to the endemic phase in 2022, and the economy continued to strengthen.

"The economic growth rate in 2022 also exceeded the pre-pandemic levels.

"In fact, the level of growth of the gross domestic product (GDP) for the first quarter at 5.6% exceeded the GDP average from 2011 to 2019.

"In addition, the improving labour market also aided in household spending activities, which remained resilient," said the Prime Minister.

"The macro policy had to be reviewed so that the country does not experience pressure in terms of unsustainable economic growth and extreme price pressure, especially in the future due to inappropriate macro policies," he added.

He said this was mainly due to the existence of price pressure driven by strong demand in line with economic activity recovery.

In the first quarter this year, Anwar said, inflation had dropped to 3.6%, compared with 3.9% in the fourth quarter last year, due to lower prices of RON97 fuel.

However, he said that inflation was still high as domestic demand was still strong in a more robust economic situation.

Anwar added that a healthy economy and a more stable pricing condition would have a positive spill-over effect for all parties.

"At the current OPR at 3% as announced by the Monetary Policy Committee on May 3, 2023, the monetary policy is still accommodative and supportive towards the country's economic growth.

"Moving forward, the committee will continue to ensure that the monetary policy stance remains consistent with inflation and domestic growth prospects," he said.