He said people need to understand why there is a change in monetary policy stance and to reflect on the state of the economy that they are in.
“When we experienced a sharp fall in economic activities during Covid-19 in 2020, we saw the OPR brought down from 3% to as low as 1.75% in less than a year.
“This is simply because the central bank wanted to help the economy. By bringing down the rates, that would mean the cost of goods became cheaper and would stimulate the economy via investment and consumption,” he told Bernama.
However, Afzanizam noted that since the economy started to recover with increased economic activities, these rates have to be adjusted.
The reopening of the economy as well as international borders helped to resuscitate economic activities, he said, adding, “OPR of 1.75% does not run really well with the level of economic activities”.
However, in the event of economic headwinds and prospect of a recession, central banks will cut rates again, he said. “That is the nature of OPR or any other policy rates across the globe,” he explained.
He noted people tend to associate higher OPR with the rising cost of living and there seemed to be a misunderstanding of how things should be looked at.
“Discussion on OPR had always been one-sided – from the point of view of borrowers. OPR affects everything, not just lending rates, but also deposit rates.
“What about those who wanted to save their money and seek investments that provide good returns and at the same time have a reasonable risk tolerance?” he asked.
Pace of interest rate hikes
BNM is seen as being prudent in managing its monetary policies compared to the US and the European Union (EU), which are more aggressive.
“The adjustment has to be very quick and especially in the case of the US economy, when there are signs of economic overheating. But it is a different case in Malaysia, where BNM’s policy adjustment is gradual.”
Malaysia’s OPR, he said, has been hovering around the 3%-3.25% range when the economy did not face shocks or recession as seen prior to the Covid-19 pandemic.
“BNM is now trying to revert to its normalised rating. We are now at 2.75%, probably another 25 basis points may not be too much of a hassle for economies to take in terms of the impact.
“If there is a need to intervene and cut the rate again, at least it has more resources to do that, as opposed to keeping the OPR at a low level where the ability to intervene will be limited,” he said.
As for the ideal rate, Afzanizam said it is “very subjective” but based on the historical standards, 3% to 3.25 % seemed to be fair.