Malaysian Businesses

The first three quarters of 2014 proved positive for Malaysian businesses. Sectors enjoyed significant growth as investments were increased across the Financial, Mining, Technology and Communication industries. This growth encouraged international investment which raised the outward direct investment flows for Malaysian businesses. The debt securities market received an inflow of investment after Malaysia recorded inflow of RM11 billion in the first three quarters of 2014. The fourth quarter proved more challenging after global concerns impacted the level of growth previously experienced. The market saw a significant decline in oil prices after the threat of interest rate increases in the US. This was an important factor in the overall downturn of growth potential across the international market. These factors meant that in the fourth quarter, non-resident portfolio investments finished on a net outflow of RM20.6 billion, which is mainly attributed to Bank Negara Monetary Notes. The end of 2014 saw an overall net outflow of RM76.5 billion of which international portfolio investments had a net outflow of RM9.6 billion.

The Monetary Policy Committee (MPC) held a meeting in July 2014, at which it was agreed that the degree of monetary accommodation will be adjusted, raising the Overnight Policy Rate (OPR) by 25 basis points to 3.25%. Inflation was expected to rise above its standing average in 2014/2015, although growth for 2014 was forecasted to stay at the higher end of 4.5-5.5%. Before making the decision to adjust the OPR, significant analysis was conducted. This analysis focused on the domestic economic market as well as conducting a detailed risk assessment on the financial environment. Considerations were also given to the sustainability of market growth. To implement these changes successfully and minimise negative impact the MPC acknowledged that appropriate timing was critical. There was a high level of confidence in the market, developed over a sustained period of low, stable interest rates. However, this confidence gave a perception of minimised economic risk t.  Creating a more relaxed environment meant that there was least resistance to an increased financial imbalance. Other factors that was imperative to consider while implementing these changes, was the introduction of the Goods and Services Tax (GST), other administration costs and overall household debt. All considerations given throughout the careful planning process to implement the OPR changes resulted in a smooth and effective transition across the finance and economic environments it impacted. Sectors, such as the retail market, adjusted well to the changes and compensation of increased interest rates was provided to investors.

The central bank responded to obvious financial imbalances across the country by raising the OPR, which has not been changed for two years. The last change was in May 2011, when the OPR was increased by 25 basis points (bp) to 3%. While raising the OPR would cause interest rates to increase, economists stated that there is no reason for concern as the market is strong enough to make this move a stabilising one.

At late 2013 household debt level had raised due to constant low level of interest rate which reached 86.8% of GDP.