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Bank Negara Malaysia or BNM’s premature policy rate normalisation has not helped to stem the depreciation of the ringgit to the US dollar but may harm borrowing costs, hinder business expansion and hamper sustainable economic growth. Strengthening the value of the ringgit were amongst the reasons cited by those defending the 25 basis points hike in the Overnight Policy Rate(OPR) on 3 May by BNM. It is noteworthy that in a space of three weeks, the value of the ringgit has dropped from RM4.45 on 3 May to RM4.58 today. To date many businesses affected by the drop in the value of the ringgit are still awaiting BNM’s response. Bank Negara’s main argument for the OPR hike is the need to rein in core inflation and implement policy rate normalisation following full economic recovery from the COVID-19 pandemic. There is genuine concern whether the latest OPR hike will affect sustainable economic growth, making it difficult for Malaysia to repeat the encouraging 5.6% first quarter GDP growth in...

Malaysia’s GDP growth is projected to be between -2.0% and +0.5% in 2020, affected by weak global demand, supply chain disruptions and COVID-19 containment measures both abroad and domestic. While the Movement Control Order and measures to promote social distancing will dampen economic activity temporarily, they are necessary to contain the spread of the virus. The Government’s stimulus package will help to cushion the economic fallout. Both Pakej Rangsangan Ekonomi 2020 and Pakej Rangsangan Ekonomi Prihatin Rakyat as well as the Bank’s financial measures will provide sizable support to households and businesses. These measures are expected to add 2.8 percentage points to 2020 GDP growth. Also supporting growth is the ongoing large-scale infrastructure projects, which are expected to provide an additional 1 percentage point lift to growth in 2020. There remain significant uncertainties surrounding the growth outlook, with both upside and downside risks to the outlook. ...