Foreign investors will withdraw investments if the OPR is too low, experts warn
Photo source : Sinar Harian
Putra Business School economics analyst Associate Professor Dr Ahmed Razman Abdul Latiff said foreign investors would withdraw their investments if the OPR was too low.
"If the rate is too low, foreign investors would withdraw their investments and move to other countries, such as the United States, which offer higher rates of investment returns
.
"If foreign investors continue to withdraw their investments in the domestic market, Bank Negara Malaysia (BNM) will almost certainly be forced to raise OPR to prevent such withdrawals, which will eventually help to strengthen the ringgit," he said.
Ahmed Razman saic BNM's decision on whether to increase the OPR did not solely depend on the need to curb the rising inflation but also various factors, both internally and externally.
"It also needs to consider foreign investors' preference to invest in Malaysia, where they need to be confident about Malaysian Government Securities (MGS)," he added.
Further, Universiti Utara Malaysia economics professor Dr K. Kuperan Viswanathan said it is not advisable for Bank Negara to increase the OPR since the economy is recovering now.
"Bank Negara should not raise the OPR. The economy is recovering now and raising the OPR rates will affect investments and put a drag on economic growth, hence, there is no immediate need to raise the OPR," he opined.
Meanwhile, Sunway University professor of economics Dr Yeah Kim Leng said upward adjustments are needed as the economy may overheat and cause inflation to surge uncontrollably.
"While raising interest rates will impose higher instalment payments on consumers and businesses, the rationale for raising rates is to achieve an optimal balance between growth and inflation from an economic standpoint.
"After the steep cuts to counter the Covid-19 related economic downturn, keeping interest rates too low over a prolonged period could result in imbalances in both the real economy and the financial markets due to excessive risk-taking and speculative investments," he reasoned.
Previously, the Monetary Policy Committee (MPC) of BNM decided to increase the OPR by 25 basis points to 2.75 per cent and it is expected to be increased again this month to curb inflation and stabilise the market.
