Friday, May 19, 2006

Interest Rate Hike!

The BNM (Bank Negara Malaysia) has announced recently for the third times within five months on the revised increased of interest rate. This was done by increasing OPR to 3.5 percent.
BNM claimed the impact is 'small and neutral'. However, please be informed that the impact mentioned was based on previous interest rate announced on 22 February. Those I suggest backdated data no longer relevant in making the comment on the impact.
Based on the movement and my economic point of view, the increase in interest rate is actually a method to curb inflation. The inflation that measured by CPI as reported by BNM recently was at 4.6 which is actually considered as at "tense" level. Otherwise the OPR point will not be revised. It is normal for Central Bank in any country to rise the interest rate, as a measure to curb inflation. For example, US has increased it interest rate for 26 times since June 2004.

In our country, Bursa Malaysia has closed at lower point. Investor are more concious on market situation. While shareholder will be more careful in their investment. It is worth to invest on a business or just keep it on fixed deposit account? With rise in fuel costs and even non-fuel related products, people cutting their budget on certain things. 'Certain things' manufacturer sooner will face problem and then extended to their vendor. So we are now somewhere at tense level. Our money is loosing their power. Thanks to Ringgit strengthen against USD. Otherwise, the CPI would be much higher, perhaps.

BNM trying to loosen it by fixing new level of interest rate. However, is that the only way that we can do to curb inflation?

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