18th May 2023 - 2 min read
Global credit ratings and research service provider, Moody’s Investors Service (MIS) has said that Bank Negara Malaysia (BNM) may raise the overnight policy rate (OPR) again if food prices continue to skyrocket in the face of the ongoing heatwave.
According to analyst and assistant vice-president at Moody’s, Nishad Majmudar, the current hot weather that is expected to last until August will likely contribute to food price inflation. In turn, it will test BNM’s tolerance level with regard to the OPR.
“We do expect them to be on hold after this latest hike, but perhaps there is room for further hikes if food inflation becomes more of a serious, serious problem,” said Majmudar during a media roundtable. BNM had surprised experts earlier this month when it unexpectedly raised the OPR by twenty five basis points after holding the rate steady at 2.75% for two consecutive Monetary Policy Committee (MPC) meetings since the start of 2023. BNM further explained that the move was made to keep inflation in check amid Malaysia’s robust economic growth.
Given that the OPR is now back at its pre-pandemic level of 3.00%, many experts believe that BNM will maintain the rate for the remainder of 2023 – unless it is forced to implement more monetary tightening in response to future challenges. An example of such challenges includes the current extreme weather, which could affect economic activities and cause disruptions to food supplies.
That said, Majmudar acknowledged that Malaysia has had plenty of experience in dealing with food and climate-related risks, citing previous incidences – like Malaysia’s egg supply shortage at the end of last year – as examples. As such, changes to the OPR will only be made as a final resort to resolve issues.
“We think that the government has been actually quite forward looking in terms of thinking about carbon transition and climate change and climate risks. While these exposures have increased, there are government policies in place, there are plans, whether it be infrastructure or other measures, to try to adapt to some of these risks,” said Majmudar.
(Source: Free Malaysia Today)
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