Malaysia’s “real interest rate” is now positive. How do we know the real interest rate? What does a positive real interest rate mean? What are expectations for Malaysia ahead?
- Inflation: A general and sustained increase in prices for goods and services in an economy.
- Nominal Interest Rate: Interest rate seen before taking into account inflation.
- Real Interest Rate: Rate that you receive after factoring in inflation.
- Consumer Price Index: A measure weighted average of prices of a basket of consumer goods and services.
- Overnight Policy Rate: Interest rate at which a depository institution lends immediately available funds (balances within central bank) to another depository institution overnight.
Nominal Interest Rate – Inflation Rate = Real Interest Rate
Key Interest Rate Figures
- 2018 Jan Consumer Price Index (CPI): 2.70%.
- Overnight Policy Rate (OPR): 3.25%.
- 2017 Inflation Rate: 3.9% (ranging from 3.2% – 5.1%).
Why Lower Inflation Rates?
- Ringgit strengthened from USDMYR 4.42 to 3.90.
- Petrol price moderated compared with a year ago.
- Lower prices of imported products.
Positive Real Interest Rate
- Malaysia’s real interest rate now positive with lower inflation and higher nominal interest rates.
- Real Interest Rate = 3.25% – 2.70% = 0.55%.
- If your savings interest rate is higher than the inflation rate, you are actually making (some) money in real terms.
What Does Malaysia’s Economy Need?
- Low and stable inflation rate (Inflation: 2.70%).
- High employment rate (Unemployment: 3.30%).
- GDP growth (GDP Growth Last month: 0.90% / Annually: 5.90%).
Economic Expectations 2018
- GDP Growth Rate: 5.4%
- Unemployment Rate: 3.5%
- Inflation Rate: 2.90%
- Interest Rate: 3.25%
- OPR hikes: 0.25% (no further rate hikes in 2018)