Business community heaves sigh of relief at stable OPR

 

Stable interest rates will boost consumer confidence and spending, benefitting SMEs. (Freepik pic)

PETALING JAYA: The business community is breathing a collective sigh of relief after Bank Negara Malaysia (BNM) decided not to hike the overnight policy rate (OPR) but kept it steady at 3%.

The National Chamber of Commerce and Industry of Malaysia (NCCIM) expressed relief at the decision, citing the stability and predictability it provides for businesses.

“Since the US first hiked the federal funds rate in March 2022, Malaysia has increased the OPR by a modest 125 basis points, among the lowest hikes globally.

“This careful approach provides stability and predictability for businesses, is crucial for planning and investment, and helps in managing financial costs, especially for businesses with variable-rate loans,” NCCIM told FMT Business.

Chin Chee Seong.

SME Association of Malaysia secretary-general Chin Chee Seong said maintaining the OPR at 3% was “a good decision” by BNM.

“The central bank is trying to help the economy grow by keeping interest rates low. This is a balancing act because they also want to keep inflation under control and deal with some bumps in the global economy.

“By keeping rates low, they’re making it easier for businesses to borrow money. This can be especially helpful during these uncertain times and can help create jobs,” he told FMT Business.

Benefits of stable OPR

BNM has now kept the OPR unchanged for a year, having last raised it in May 2023 by 25 basis points (bps), bucking a trend by its regional counterparts.

Indonesia’s central bank raised its benchmark interest rate by 25bps to 6.25% last month to shore up the weak rupiah while the Philippine central bank raised its key rate by 25bps in an off-cycle meeting last October.

NCCIM said businesses will benefit from stable borrowing costs, which aids in cash flow management and reduces the pressure on operational expenses.

It also makes planning and investment decisions easier for businesses, encouraging them to expand and innovate, it said.

“SMEs, which are particularly sensitive to interest rate changes, will find it easier to manage finance costs, supporting their sustainability and growth.

“Consumers are also more likely to maintain spending, benefitting sectors like retail, services and real estate,” it added.

Chin agreed that stable interest rates boost consumer confidence and spending, and this is crucial for SMEs relying on domestic sales.

“Predictable borrowing costs also reduce investment risks, encouraging businesses to invest in training and equipment.

“The stability reassures SMEs amid global economic uncertainties, providing security as they plan for the future,” he said.

It also enables SMEs to capitalise on the resurgence of tourism and infrastructure projects without added loan costs, fostering economic growth.

On whether BNM should reduce the OPR, Chin said BNM would need to evaluate inflation trends, the global economic outlook and impact on small businesses, while balancing the need to promote growth with price stability.

“If inflation remains low or continues to decline, BNM could lower rates to stimulate economic growth, given that inflation is projected to slow later this year.

“In response to potential global economic challenges impacting Malaysia, a rate reduction could support businesses, though steady domestic economic performance may warrant maintaining or increasing rates.” - FMT