OPR hike or not, we have to manage our finances diligently

KUALA LUMPUR - While the whole nation waits to see if there will be another overnight policy rate (OPR) hike on Jan 19 or whether Bank Negara Malaysia will maintain the current rate until the effects really sink in, the key thought is, can we afford to have the OPR continue its upward climb.

The inflation rate, especially for food, rose by 7.3 per cent in November 2022, a steady month-on-month increase. This resulted in the prices of some items rising by more than 100 per cent last year, leading to an intense discussion on food security.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the 7.3 per cent increase in food was the main contributor to overall inflation, followed by transportation, which rose 7.2 per cent, which resulted in higher logistic costs.

While various efforts, such as increasing the OPR, have been taken to control excess cash and normalise demand, the reality is that until today, people are still waiting for the situation to improve, or at least be less painful.

An OPR increase can tighten cash flow for the average person on the street, especially for those with a car or housing loan, or both.

For those who formalised their loan agreement before the COVID-19 pandemic, the interest rates would have normalised.

However, those who refinanced their loans or signed up for new financing during the period, especially for long-term commitments like housing or automotive loans, they would find the situation particularly tough.

The same goes for personal loans. In short, loans cost more nowadays because the cost of money has increased. This has resulted in financial liquidity drying up for many.

However, we need to remember that a normalising OPR is inevitable to ensure foreign investments keep flowing in at a healthy rate and that the ringgit-US dollar exchange rate is maintained within a healthy range.

This is because the US dollar is the main global trading currency, and if the ringgit continues to slip against the dollar, the cost won’t just double, it will be more than that.

The importance of financial literacy

According to the Global Risks Report 2023 by the World Economic Forum (WEF) in the Executive Opinion Survey (EOS), cost of living, rapid or sustained inflation, and debt crises were identified as Malaysia’s top three global risks.

The report ranked the cost of living as the most severe global risk following the prolonged economic closure induced by the COVID-19 pandemic, supply chain disruption due to the Russia-Ukraine war and export restrictions. Each of these caused inflation to spike.

Principal Asset Management Bhd chief investment officer Patrick Chang said while inflation levels have taken everybody by surprise, not only in Malaysia but globally in 2022, the increase -- coupled with the US Federal Reserve’s aggressive interest rate hikes -- gave rise to volatile markets.

However, the situation is expected to moderate soon, he said. Chang admitted that there were a lot of concerns regarding the economy in 2022 but he is looking at a more neutral 2023 for Malaysia.

On the savings landscape, a RinggitPlus study showed that seven out of 10 Malaysians saved less than RM500 per month, with many unable to save a single cent.

At this juncture, what can we do? Is it possible to safe for rainy days when the rainy days are upon us?

As Malaysia becomes an ageing nation, those who still have the energy to work must try their level best to save, if not much, then a little every month for their retirement.

We need to remember that no amount is too small. A ringgit saved is a ringgit earned. It can be your lifeline during tough times. Investment applications like Raiz can help you save your small change without you noticing it.

It is also important to have a financial planner to ensure that we still have room to manoeuvre, and if things get out of hand, it is best to seek professional help from the Credit Counselling and Debt Management Agency (AKPK) to help you recalibrate your finances.

Whatever the decision on the OPR tomorrow, we need to strengthen our financial literacy and preparedness to face future adversity for the sake of our future. - BERNAMA