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Bank Negara Malaysia yesterday raised the Overnight Policy Rate (OPR) by another 25 basis points (bps) to 2.5 per cent, in a further move to normalise monetary conditions.

The move to raise borrowing costs, through the benchmark interest rate, had been widely anticipated by the market.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said that at the new level, the stance of the monetary policy continues to be accommodative and supportive of economic growth.

It was the second time this year that the central bank had raised the OPR, after the 25 bps increase in March.

Most economists polled by Business Times said they expected further increases in the benchmark interest rate before the end of the year.

“The rates were initially brought down under exceptional conditions, but (they) do not prevail as the Malaysian economy is firmly on the path of recovery and we expect it to improve in the remaining quarters on domestic demand, investment activities and trade with Asia remaining robust. Bank Negara will continue to monitor the situation in our next meeting in July,” Zeti said.

Inflation is moderate and the headline inflation rate, as measured by the change in the Consumer Price Index, increased to 1.3 per cent in the first quarter.

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The ringgit remains stable against other currencies and is flexible enough to respond when conditions warrant it, says Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz. “The ringgit is moving in line with other currencies, so it is now stable against other currencies,” she said after the launch of the Malaysian branch of PT Bank Muamalat Indonesia and its subsidiary First International Islamic Bank yesterday.

Asked whether it was significant that the ringgit was approaching 3.8 against the US dollar, the same level as the former peg against the greenback, Zeti said: “No. That is precisely why we have a flexible exchange-rate regime. When conditions change, the ringgit is able to respond and that is important.”

“We have already reduced interest rates from 3.5%. Now it is 2% and we believe that this is supportive of growth,” she said.
From left: A. Riawan Amin, special envoy of the President Indonesia Dr Alwi Shihab, Aambassador of Indonesia to Malaysia Tan Sri Prof Da’i Bachtiar and Tan Sri Dr Zeti Akhtar Aziz at the launch

“What is more important is access to financing. So, we are engaging with banks and monitoring the situation to ensure that borrowers have access to financing – that is the most important (factor) to support growth,” she said.

“We will only intervene to ensure orderly conditions but for most of the period, it has been functioning on its own,” she said, adding that the currency market remained orderly.

On a possible recession here, Zeti said this was much dependent on external developments. Zeti also said the current interests rates were supportive of economic growth. “We have already seen a decline in imports and a very significant decline in exports but so far, domestic demand has managed to keep us in positive territory.” She cautioned that conditions “remained highly volatile”. “So, we have to monitor them,” she said.

Earlier, Zeti said the current financial crisis was expected to accelerate the financial and economic integration in Asia.

“This should be viewed positively, not only towards the unwinding of the global imbalances but also because it has the potential to contribute towards global growth. The banking sector in Asean and the greater Asian region will have an important role in facilitating this trend,” she said.

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The interest charged by financial institutions in Malaysia is one of the highest in the region at 1.5% per month which works out to an effective annualised rate of almost 20% per annum. Although many consumer associations and NGOs has requested Bank Negara to impose a lower rate, Pro Trade Shares would prefer if Bank Negara imposes higher restriction  such as having a maximum number of credit cards any individual can hold at any one time. With lending rates reduced and lower cost of funds, consumers are now rallying for credit card interest rates to be slashed to help them get out of debt.

Credit card interest is now pegged at 18% a year (1.5% a month) making it an uphill task for those with large outstanding balances to be debt-free.If one can only afford to pay the minimum 5% repayment each month, it could take forever to repay as balances snowball under the high interest rate.There are 10.3 million credit cardholders in the country with total debt standing at RM22.8bil as of Dec 2008.Recently, Bank Negara announced a 75 basis point cut in the indicative overnight policy rate or OPR to 2.5%.

Following this, banks reduced their base lending rates (BLR), which eased the burden on those servicing housing and mortgage loans.

The country’s largest bank, Maybank, has reduced its BLR to 5.95%, from 6.5%, with RHB Bank, Hong Leong Bank, CIMB and Bumiputera Commerce Holding Bhd also among other banks fixing a similar BLR.

Many feel it is about time that credit card interest rate be adjusted, given the challenging economic scenario.

Consumers Association of Penang (CAP) president S.M. Mohamed Idris called for the 20-day interest free period for credit cardholders making purchases to be reinstated, regardless of whether they paid their outstanding balances in full.

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