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Interest rate hike to trigger inflationary pressure

  • 0.25% increase in OPR will likely trigger another round of inflationary pressure, as increased cost of doing business will eventually be transferred to consumers.

PETALING JAYA, Jan 26 (Sin Chew Daily) -- Bank Negara's decision to increase the OPR by 25 basis points is bound to trigger another round of inflationary pressure, as increased cost of doing business will eventually be transferred to consumers.

Datuk Chua Tia Guan, head of tax & financial consulting at Great Vision Business Advisory Services, told Sin Chew Daily although commercial banks can decide whether they want to increase their lending rates, generally they will increase their fixed deposit rates.

However, he did not think this would encourage more people to put their money in the bank, as they may already have their own investment portfolios as to how much to go to property investment, EPF, equity market or fixed deposits, and are therefore unlikely to put more money in the bank just because of a few basis points of rate increase.

He said some people might choose to lengthen their loan repayment periods so as to ensure sufficient cashflow to tackle their day-to-day needs.

He also said higher interest rate could add to the burden of car buyers too.

Meanwhile, SME Association president Datuk Michael Kang pointed out that the cost of doing business in Malaysia would continue to go up unless the ringgit appreciates to a level that will offset the impact of higher interest rate.

He said the rising cost of doing business would eventually be transferred to consumers.

He explained that the recent strength of ringgit has yet to provide a relief to business costs due to the current old stock, adding that the effects of stronger ringgit would only be manifested earliest by March or April.

However, if the ringgit softens by then, consumers may not even be able to enjoy the benefit of ringgit appreciation.

 

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