KUALA LUMPUR, June 6 — A sharp decline in the fiscal deficit rate will affect the country’s economy adversely, especially in terms of development projects related to education, healthcare and rural infrastructure, says Prime Minister Datuk Seri Anwar Ibrahim.
Anwar, who is also finance minister, said that instead of being lowered abruptly, the deficit should be reduced gradually to an acceptable level, as was announced earlier.
“Economic as well as Bank Negara Malaysia (BNM) wisdom too will determine the ringgit’s strength, but we also have to consider that a sharp rise in the overnight policy rate (OPR) would have a negative impact on businesses,” he said during the Minister’s Question Time session in the Dewan Rakyat today.
He was replying to Putrajaya MP Datuk Mohd Radzi Md Jidin's query on the effect of the ringgit’s depreciation on the national economic recovery and the approach being taken to strengthen the local currency.
So far, Anwar said, the government and BNM have been cautious and prudent in raising interest rates as a balanced approach is required.
Elaborating on the ringgit’s performance, the prime minister said the lower exchange rate recorded recently was due to the strengthening of the US dollar.
“Since Dec 31, 2022, the ringgit has eased 3.8 per cent against the US dollar. The Japanese yen fell more than six per cent to the greenback, while the Australian dollar, South Korean won and Chinese yuan dropped about three per cent,” he said.
He noted that BNM has raised the key interest rate by 125 basis points (bps) since January 2022 compared to 380bps in Singapore, 225bps in Indonesia, and 500bps in the United States.
“Singapore has raised (its rates) high so the country’s currency has been firmer,” he said.
On Malaysia’s OPR hike, Anwar said BNM has had full discretion in determining the OPR rate since the previous government administrations, in line with legislation.
“Under the current unity government, we have only raised the OPR once,” he noted.
Anwar advised the central bank to consider not just the monetary issue but also the fiscal policy and investor confidence in total.
“What is happening now is, as seen from investor confidence through investments received for the first quarter of 2023, the country’s economic growth has provided assurance, although the ringgit’s value is still tied to the US dollar’s strength,” he said.
On the dependence on the greenback, Anwar said the country needs to be stable and adopt responsible long-term and fiscal policies to prevent any adverse impact on the domestic economy.
He also highlighted the proposal to establish the Asian Monetary Fund which he said could reduce the currency’s dependence on the US dollar given that the United States’ interest rate decisions are based on its own domestic interest.
— Bernama
