Investors may shift funds from equities to fixed-income investments

KUCHING: The interest rate hike by Bank Negara Malaysia (BNM) can have both positive and negative effects on businesses, opines an economist.

Dr  Moslem  Anoar explained that the increased Overnight Policy Rate (OPR) would have ultimate impact towards specific industry, company size, and reliance on borrowed funds.

“Additionally, the effectiveness of the rate hike in managing inflation and fostering economic stability will play a significant role in determining the long-term consequences for businesses,” he said on Friday (May 5).

He noted that there were potential outcomes and consequences, at least, with higher borrowing costs, currency appreciation, controlling inflation, impact on consumer spending, and higher interest rates could cause stock markets to react negatively.

“With this happening, investors may shift their funds from equities to fixed-income investments with more attractive returns.

“This could lead to a decrease in stock prices, impacting businesses’ market capitalisation and access to capital,” he added.

On Wednesday (May 3), BNM unexpectedly raised its benchmark interest rate.

It cited a need to normalise monetary accommodation as the economy was resilient and it needed to manage persistent inflation.

The OPR was raised by 25 basis points to three per cent.