In Malaysia’s economic arena, the Overnight Policy Rate (OPR) serves as a primary tool used by Bank Negara Malaysia to control and measure the country’s interest rates. The OPR plays a crucial role in determining the economic direction through its influence on the rate of money supply growth in the system.

Essentially, the OPR is the interest rate set by Bank Negara Malaysia. When the OPR is raised, it increases interest rates, and conversely, when it is lowered, it stimulates a decrease in interest rates. These changes directly impact the rate of money supply growth in the economy.

In this context, the growth of the money supply in the economy is an inevitable phenomenon. What needs to be monitored is the extent of this growth. In a sluggish economic situation, Bank Negara Malaysia may choose to lower the OPR to stimulate borrowing activities, which in turn increases the rate of money supply growth. However, this can also lead to increased inflation.

This concept is known as the transmission mechanism, where changes in the OPR directly affect the economic conditions. In a situation of rapid economic growth, money supply growth is normal, but it’s important to measure the extent of this growth rate.

Each country may use different methods to control inflation. For example, Singapore uses the Sora as an interest rate method, while Malaysia uses the OPR, and the United States uses the federal funds rate. Despite the different methods, the primary objective is to control inflation.

It should be noted that Bank Negara Malaysia needs to choose a focus between interest rates and exchange rates. The decision to raise or lower the OPR depends on the current inflation analysis. Changes in the OPR also affect the value of the ringgit, with an increase in the OPR causing foreign capital inflows into the country, which in turn increases the value of the ringgit.

While this happens, it should be remembered that the current inflation rate in Malaysia is around 1.5%. So, if Bank Negara Malaysia decides to raise the OPR, inflation growth may occur in line with the increase in the rate of money supply growth in the economy.

In conclusion, the OPR is a vital tool in Bank Negara Malaysia’s artillery to control the country’s economy. Understanding how changes in the OPR affect inflation and the value of the ringgit is crucial for investors and economic observers to make informed decisions.