Interest rates will rise in H2 2022. Let’s be ready and be happy too.
If rates were to rise, what will happen?
Well, if the interest rate rises, the cost of borrowing will increase. Business will need more money to serve their loans. People buying a home may have to factor the extra amount of instalments for their home purchase. Some may also use this as an excuse not to buy.
Some businesses which wanted to expand in the current situation may have to rethink and recalculate. They may still proceed of course as the business turnover is likely to be far higher than the little extra due to rates increase. Anyway, are the interest rates really rising? Well, we have chief economist of ASEAN and South Asia of Standard Chartered Bank giving us the view and analysis.
Article in nst.com.my Lee Wee Kok, the Standard Chartered Bank chief economist for Asean and South Asia said that he expects Bank Negara Malaysia (BNM) to start hiking interest rates in the third quarter (Q3) of 2022 with two 25 basis points (bps) hikes and another 25 bps increase in the fourth quarter, taking the policy rate to 2.5 per cent by the end of the year.
He said, “Despite a challenging Q3 2021, we expect the economy to rebound strongly in the quarters ahead due to a successful vaccination programme, strong external demand, and supportive monetary and fiscal policy. We expect the output gap to close in late 2022. Given the historically low policy rate, we expect BNM to start normalising in Q3 2022 in order to realign monetary policy settings with the strong economic recovery.” Do read the full article here: Article in nst.com.my
Why should we be happy?
When the Malaysian economy is not doing that well, our Bank Negara Malaysia (BNM) would do their best to be accommodative to economic growth. There is the monetary policy which BNM could use. Usually, interest rates are lowered to encourage spending, investments and thus would help to propel economic growth.
Briefly, when rates are low, people may take their money from their accounts to invest, corporations may also want to borrow to expand, more people may choose to buy a property since rates are now even lower. These are just some examples of what happens when rates are lowered.
When the economic growth starts to move, it may also spark a rise in inflation and BNM would thus need to balance between growth and inflation concerns. This is where interest rates may be raised. Thus, raising interest rates are also showing a positive sign for the economy too. This is why we should also be happy.
Happy knowing that the economy is indeed moving enough that BNM could even make this decision of raising the interest rate. Cheers.
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