Bank Negara Malaysia (BNM) has announced today (9th May 2024) that the Overnight Policy Rate (OPR) will remain steady at 3%. This rate has remained unchanged since May 2023, marking a year of consistent monetary policy.
The monetary policy meets six times annually to deliberate on the OPR.
Source: BNM
Looking ahead , there is uncertainty surrounding whether the OPR will stay at 3% or increase further. Historically, the highest OPR since April 2015 was 3.50%, and the lowest was 1.75% in July 2020 during the COVID-19 pandemic. Typically, changes in the OPR are made in increments of 25 basis points (0.25%).
As for the likelihood of an OPR increase this year, it appears unlikely that there will be a reduction in the near future. Instead, the OPR will either hold steady or increase depending on several factors:
- EPF Withdrawals: Starting May 11, 2024, contributors to the Employees Provident Fund (EPF) can withdraw from Account 3 at any time, potentially leading to RM25 billion (around 1.3% of GDP) in withdrawals. This could result in increased demand-driven inflation.
- Civil Service Salary Hike: There may be a raise in civil service salaries by over 13% beginning in December, which could also contribute to inflationary pressures.
- Fuel Subsidy Rationalization: Implementation of fuel subsidy rationalization could occur in 2025 or earlier, which may further increase inflation risk.
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Given these factors, my prediction is that the OPR is likely to remain unchanged at 3% this year, but it could increase in 2025 due to inflationary pressures. This would allow BNM to maintain stability in the economy while also addressing any potential inflation concerns.
From the Desk of Miichael Yeoh
Miichael Yeoh 
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