KUALA LUMPUR (June 6): Higher borrowing costs and the sharp depreciation of the ringgit may be disquieting for Malaysians, but Prime Minister Datuk Seri Anwar Ibrahim on Tuesday (June 6) defended Bank Negara Malaysia's (BNM) recent raising of its key interest rate as a gradual move in adjusting monetary policy to soften the impact of the weak local currency on the economy.

Also the finance minister and Member of Parliament for Tambun, Anwar reiterated that the recent depreciation of the ringgit was mainly due to the strengthening of the US dollar, and that the local unit is not the only currency in the region that had slipped in value.

“BNM's decision does affect the ringgit's strength, but we also understand that an increase in the OPR (overnight policy rate) in a drastic manner will result in negative implications for the country, hence we need to balance that.

“Therefore, as of now, BNM was of the view that it was prudent to raise the OPR recently. Singapore raised their interest rate more drastically, hence the Singapore dollar is stronger,” he told the Dewan Rakyat on Tuesday.

Putrajaya MP Datuk Dr Mohd Radzi Md Jidin had raised the question of the impact of the devaluation of the ringgit on the country's economic recovery and the government's approach to strengthening the ringgit.

Anwar said that although the Singapore dollar and Indonesia rupiah had performed relatively better, the countries also adopted more drastic measures to defend their currencies.

Apart from raising interest rates, Anwar said Indonesia also lowered its fiscal deficit more aggressively by reducing subsidies. For instance, from its original 2021 target of 5.7%, Southeast Asia's largest economy managed to bring its fiscal deficit down to 4.6%, further paring it to 2.4% last year.

“We should also lower our fiscal deficit, from 5.6% last year to 5.0% this year. We want to take a more gradual approach, because cutting the fiscal deficit aggressively would affect development of the economy like infrastructure [spending],” he said.

Radzi then asked Anwar if raising the OPR would further burden the people at a time when the government is cutting subsidies.

Anwar said the decision is entirely up to BNM, adding that his administration had not cut subsidies for the poor.

“I agree there is imported inflation, but the relevant ministry is monitoring it - just like the chicken and egg supply [issue] last year. Regarding a cut in subsidies, I don’t understand which subsidies we [are said to have] removed for the poor? Those that we removed were subsidies for the rich. We did not cut subsidies for the majority of the people.

“The government can’t even cut subsidies for the rich? What kind of policy is this? I have to take from the rich to avoid affecting the poor,” said Anwar. 

https://www.theedgemarkets.com/node/669984