KUALA LUMPUR: Malaysia does not require higher interest rates because inflation is under control and economic growth has slowed, an industry executive said.
Juwai IQI co-founder and group chief executive officer Kashif Ansari believes that Bank Negara Malaysia will keep the Overnight Policy Rate (OPR) unchanged on Thursday in order to avoid surprising the market or squeezing the economy.
Bank Negara was among the first in the world to begin raising rates during this cycle, allowing Malaysia to outperform inflation without experiencing a recession, Kashif said ahead of the central bank releasing its sixth and final monetary policy statement of 2023.
The housing and financial markets like when rates fall, but they don't like surprises, and a decision not to adjust the rate has been widely expected, he noted.
"All indicators suggest that we don't need higher rates. Inflation is under control, and economic growth has cooled. That has been good for the housing market.
"The ringgit has fallen low against the US dollar, and some have called for Bank Negara to increase the OPR to help stem the ringgit's fall.
"Interest rates are lower in Malaysia than in the US, so many investors are moving their money to America for the higher returns on cash and bonds.
"By increasing the OPR, Bank Negara would hope to help the ringgit regain some of its value. The bank may yet do this in 2024," Kashif explained.
Strong household finances and employment are two indicators to evaluate how housing demand is likely to trend, and both are in good shape, he said.
The household debt-to-gross domestic product ratio is one statistic to consider when assessing household finances.
In June, that ratio was 81.9 per cent, little change from 81 per cent in December 2022 and significantly higher than 84.4 per cent a year earlier.
The median debt-to-income (DTI) ratio is another ratio.
"When this (DTI) goes up, it means families are taking on more debt relative to their earnings, which often leads to more families ending up unable to pay their mortgages and losing their homes.
"The DTI ratio is basically stable at 1.4. Among those earning less than RM3,000 per month, it's an even better 1.3," Kashif said.
The third indicator that helps us know if households are in good financial shape is the median debt service ratio (DSR).
For newly-approved household loans, that ratio is 42 per cent and for outstanding household loans, it is 36 per cent.
"Both are safe numbers. The debt service ratio tells us that households have more than enough income to pay off their debt," he said.