A day after the OPR was adjusted, I saw a comment in Facebook which said that this reduction in OPR is because the economy is weakening. Let’s hear what our Bank Negara Governor, Datuk Muhammad Ibrahim wanted to say. It was reported in Starbiz. He said, “The decision to cut the overnight policy rate (OPR) is a pre-emptive action to ensure that the economy continues to remain on a steady growth path. It’s not that we expected growth to be weaker in the second half. We anticipate it to be stronger and that growth for the whole year is expected to remain between 4% and 4.5%. Now, what we intend to do is to ensure this happens. Basically it is a pre-emptive move.”
Besides that, there is now a window of opportunity especially with inflation having gone lower than expected. Inflation expected to be at 2-3% in 2016 which is lower than an earlier estimated 2.5-3.5%. Not too hard to see why, everyone has been cutting back on purchases and thus the producers are also adjusting their prices too. Muhammad also said that there are currentlyno further plans for adjustment of interest rates over the next few quarters but BNM is ever ready to do it if necessary. Due to the dynamic environment, BNM looked at many factors before deciding on monetary policies including developments in other countries. Decision is always forward looking.
Yes, needless to say, I think our new BNM governor is another good fellow. Keeping up the proactive measures is extremely important as developments around the world continue to affect a small nation like Malaysia. Happy reading.
written on 16 July 2016
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