LETTER | Significance of maintaining a steady OPR

LETTER | Yesterday, Bank Negara Malaysia (BNM) maintained the overnight policy rate (OPR) at three percent.

Everyone can take a deep sigh of relief. Mortgage rates, consumer unsecured loan rates and business loan rates are all predicted to remain stable.

The interest rates the borrower pays each month on existing loans will not change. Maintaining a constant OPR is crucial for achieving and maintaining inflation target rates.

The central bank's goal in keeping interest rates steady is to find a happy medium between fostering economic expansion and limiting price increases.

If inflation stays manageable, it may be premature to change the OPR. Stable OPRs help the economy grow by making loans to firms and consumers more predictable.

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Businesses are better able to prepare for the future and make educated financial decisions when there is a consistent economic environment in which to do so.

BNM may decide to keep the OPR unchanged if the economy is growing steadily. Moreover, it is common practice to evaluate market conditions thoroughly before deciding to maintain OPR at its current level.

Exchange rates, trade surpluses and general economic developments around the world are all considered. If the central bank determines that these conditions are favourable and consistent with a stable interest rate environment, it may decide to keep the OPR in place.

The OPR decision also reflects the BNM's efforts to strike a balance between inflation management, economic growth support, market assessment, external influence consideration and the implementation of a long-term policy.

By maintaining a steady OPR, central banks help businesses and individuals make long-term plans and quick decisions.

A consistent OPR ensures a consistent interest rate environment for consumers and companies. This predictability inspires trust in long-term budgeting and investing choices.

Knowing that interest rates on loans and mortgages will be stable is helpful for both firms and consumers in planning for growth. This consistency fosters economic expansion and promotes monetary security.

Central banks employ the OPR as a means of controlling inflation. By maintaining the same OPR, central banks are able to proceed with their inflation control policies with minimal economic fallout.

Predictability in the economy, investment and consumption, market confidence, inflation management and efficient policy transmission all depend on a stable OPR.

Central banks help support economic growth, financial stability and market confidence by providing a predictable interest rate environment.

Author is a lecturer in the Faculty of Business and Communication, Universiti Malaysia Perlis.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.