Guan Eng lauds Q1 economic growth, worries that OPR hike will hurt Q2

Former finance minister Lim Guan Eng has lauded the robust economic growth during the first quarter under Prime Minister Anwar Ibrahim but cautions that policy alignment with Bank Negara Malaysia (BNM) is needed.

In a statement today, he once again criticised the recent overnight policy rate (OPR) hike by BNM and expressed fear that it will impede growth in the second quarter.

“The government under Anwar should be commended for steering Malaysia’s economy to a stronger than expected 2023 first-quarter gross domestic product (GDP) growth of 5.6 percent.

“The good GDP growth was driven by further expansion of household spending, employment, and private consumption spending.

“The strong first quarter can also be attributed to economic policy alignment between the government and BNM in focusing on sustainable GDP growth,” said Lim (above), who is Bagan MP.

He said that the alignment and coordination between the federal government’s looser fiscal policy, with the largest 2023 budget in history of RM388 billion, and BNM’s benign monetary policy, with twin pauses in hiking up the OPR in January and March 2023, had indeed facilitated economic growth.

“However, the surprise hike in OPR by Bank Negara on May 3, may make it difficult for Malaysia to repeat the 5.6 percent first quarter GDP growth in the second quarter of 2023,” he added.

He said the reasoning provided by BNM governor Nor Shamsiah Mohd Yunus of wanting to guard against resurgent inflation with the surprising OPR hike recently has created some confusion.

“Why is inflation a problem now, necessitating an OPR hike but not a problem then in January and March 2023 when BNM paused hikes in OPR?

“Why did BNM pause twice in hiking up the OPR when headline and core inflation was higher?” asked the DAP national chairperson.

He said that core inflation had in fact moderated to 3.9 percent in the first quarter of 2023, as announced in April this year. This compared favourably to the final quarter in 2022 of 4.2 percent.

“If core inflation is such a big concern, why were there no OPR hikes by BNM in January and March 2023?

“A BNM seriously concerned about headline and core inflation should have immediately hiked up the OPR in January and March 2023 when inflation for the final quarter of 2022 was higher and not wait until now.

“Despite BNM not hiking up the OPR in January and March this year, both headline inflation and core inflation successfully decreased to 3.4 percent and 3.8 percent respectively in March 2023. Both headline and core inflation were already being reined in despite no hikes in OPR by BNM,” he said.

Thus, Lim questions the rationale for the surprise hike in the absence of any evidence of resurgent inflation, adding it has instead caused unnecessary financial hardship to borrowers, particularly individuals and SMEs.

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