OPR hike helps control inflation, surplus cash in market

SHAH ALAM - The people should not blame Bank Negara Malaysia (BNM) for the rise in the overnight policy rate (OPR) as the institution is responsible in managing the country's financial system without siding with any party.

Universiti Sains Islam Malaysia Economics and Business Faculty Islamic Banking and Finance lecturer Dr Mohd Faisol Ibrahim said raising the OPR was not an arbitrary decision, but it involved several economic indicators such as the inflation rate.

"What BNM did was right in controlling the inflation rate and surplus money in the market.

"The increase was made to ensure that the Malaysian economy would be in a sustainable state so that the community is able to conduct business, buying and selling as well as other activities," he told Sinar.

It was reported that BNM had denied acting ruthlessly in raising the OPR by 25 basis points to three per cent recently.

BNM governor Tan Sri Nor Shamsiah Mohd Yunus said the decision was made to control the inflation rate from skyrocketing affecting the purchasing power of consumers.

Faisol explained that the rationality behind the OPR increase could be seen in the long-term where consumers' purchasing power will increase.

He added that the increase would cause bank loans and financing to increase resulting to people not being able to simply take up loans and financing.

"Lastly, they will move towards several forms of savings such as purchasing gold, keeping money in the bank, among others.

"The OPR increase would provide more profits to banks as the financial institution's assets would increase due to high returns towards loans and financing," he said.

Faisol said if there was an increase in bank deposits by customers, it would provide profits for the institution as the need for a "reserve bank" would increase and the total assets could be expanded.