Effectiveness of Raising the OPR in Strengthening the Ringgit Questioned

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The recent discussion at the RAM Forum 2023 centered on whether raising the Overnight Policy Rate (OPR) is an effective tool for bolstering the Malaysian ringgit. Panellists at the forum expressed skepticism about the efficacy of this approach, particularly in light of the continued tightening of monetary policy in the United States.

Maybank Investment Bank’s Head of Fixed Income Research, Winson Phoon, expressed reservations about the use of OPR to defend the ringgit. He pointed out that the US’s ongoing monetary policy tightening makes raising the OPR a less than ideal tool for achieving the desired outcome.

Phoon drew attention to Indonesia, which recently raised its interest rates to support its currency. However, he noted that despite this move, the US’s persistent tightening actions had limited the effectiveness of such measures.


Bank Indonesia had raised its seven-day reverse repurchase rate by 25 basis points to 6%, marking a four-year high. In contrast, Bank Negara Malaysia’s last OPR increase was in May, with a 25 basis points hike to 3%.

Dr. Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia, echoed these concerns. He cautioned against using the OPR to address currency depreciation, suggesting that it could have adverse economic consequences. Instead, he proposed a focus on strengthening policies as a more suitable approach to shoring up the weakening ringgit.

Afzanizam emphasized the importance of considering policy objectives and their implications when deciding on monetary policy tools. He likened the ringgit to a company’s stock price, suggesting that the currency’s performance is a reflection of broader economic factors.

In Parliament, Prime Minister Datuk Seri Anwar Ibrahim also questioned the sole reliance on raising the OPR to address the ringgit’s depreciation. He expressed concerns about the potential impact on small businesses and emphasized the need to focus on areas where Malaysia excels while maintaining a healthy economy.

The effectiveness of raising the OPR in supporting the ringgit remains a topic of debate, with experts highlighting the need for a holistic approach to address currency weakness.

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