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3:19pm 13/05/2022
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Further rate hikes likely in second half

Interest rate may be revised upward again over the next six months to stem inflation and ringgit depreciation.

PETALING JAYA: Economists are reminding consumers to spend in a prudent manner for fear the interest rate will be revised upward again over the next six months.

They are of the view that the recent rate hike announced by Bank Negara will see merchants pass on the cost increases to consumers.

Koong Lin Loong, managing partner at accounting firm Reanda LLKG International, said the rate revision this round had come earlier than expected.

With inflation and weaker ringgit, interest rates could be revised again over the next six months, he said.

The increase in interest rates means higher borrowing costs, resulting in lower disposable incomes.

However, if one does not have a huge loan, the impact of rate revision is not big, he said.

“But the weak ringgit and rate hike have increased business costs. It will trigger chain effects whereby businesses will transfer the costs to consumers,” he explained.

Koong said the implementation of minimum wage will send inflation higher.

He does not encourage people to have non-productive loans such as for buying a car.

LL Koong (L) reminds consumers to be prudent in their spending, while Phua Lee Kerk (R) says the middle income group will suffer the most from higher interests.

Phua Lee Kerk, chief strategist at Philip Capital, said Bank Negara raised the interest rate to combat inflation.

“If Bank Negara succeeds, inflation will be tamed and the people will not suffer much.

“The impact from rate hike varies from person to person,” he said.

“The Russia-Ukraine war has caused the prices of commodities to spike. Russia is also the main producer of fertilizers, prices of which have gone up too.

“The United States has started to increase interest rate. If we do not follow, capital outflow and currency depreciation will ensue.

“It’s a double blow when goods and food prices spike with the depreciation of ringgit,” he said.

Bank Negara’s move to increase interest rate will slow capital outflow and check the further depreciation of ringgit.

Phua said the rate hike would see people having to pay more for their mortgages.

“While the B40 group may not have huge loans, those in M40 have sizable car and housing loans to service. The impact of rate hike will be greater for the middle-income group,” he explained.

Dividends to be declared by Employees’ Provident Fund (EPF) would also be affected by the rate hike, he said.

A higher interest rate may see EPF declaring a higher dividend rate.

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