Tuesday, June 21, 2011

Bank Negara’s increase in interest rate ill-timed

KUALA LUMPUR: Central bank Bank Negara’s move to raise the Overnight Policy Rate is ill-timed as people are continuously facing a rise in living cost.
“Since last year, the government through Bank Negara has increased the OPR four times and each time there has been a 25 basis-point increase,” PAS MP Dzulkefly Ahmad said in a statement today.
The OPR is the benchmark interest rate commercial banks use to calculate their base lending rates for loans.

“The increase in OPR is being disputed by many parties. The OPR is a measurement of bank loan interest rates and it effects the Base Lending Rate (BLR),” he said.
The Kuala Selangor MP said with the increase of OPR and subsequent increase of Base Lending Rate, the government should realise that this will increase the cost of taking loans and business costs.
“When the OPR is increased, this in turn increases the BLR. In other words, if one was paying 5% interest rate on a housing loan last year, (after the increase in OPR) there has been a 20% increase in that interest rate,” he said.
He also questioned the timing of the OPR increase, arguing that this was not the right policy to pursue as Malaysia’s inflation was driven by ‘cost-factors’ (inflation caused by increasing costs) instead of the ‘push factors’ (inflation caused by increase in demand) as revealed by the government itself.
“The government’s policy to increase the OPR only encourages people to save more instead of spending and increasing consumption in order to encourage economic growth,” he said.
Bank Negara also announced that Statutory Reserve Requirement (SRR ) will rise to three per cent from two per cent, effective May 16.
Dzulkefly said that SRR increase was acceptable as it was to deal with or to “mop-up” the excessive liquidity caused by the influx of foreign funds.
The SRR is the minimum amount of cash that banks are required keep in hand  and which may not be used for lending or investing

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