Analysts say that Bank Negara Malaysia's (BNM) move to raise the overnight policy rate (OPR) to 3.00% might not achieve the objective of reducing the price of goods even though inflation is expected to remain under control.
Adillah Zafirah of think tank Iris Institute said the hike in OPR would result in increased costs for small and medium businesses or SMEs.
"One purpose of increasing the OPR is to stabilise the price of goods, but this is only effective if the price of goods increases due to demand.
"If prices rise due to increased costs, a rise in OPR will not help resolve the price issue."
The OPR was lowered to a record 1.75% after the onset of Covid-19 in Malaysia in early 2020.
Last year, it was raised a total of four times by a cumulative 100 basis points to 2.75% – still below the pre-Covid rate of 3.25% seen in March 2019.
The government said in March that BNM had the authority to decide on the OPR itself without interference from the administration.
Hikes in OPR are aimed, among others, at increasing the ringgit value and reducing the outflow of money.
However, Adillah said a closer look was warranted at whether the hikes benefit the people or capitalists.
Financial planning expert Farid Affandi meanwhile said that the increase in interest rates in countries where household debt is not too high had caused many people to look to their savings, thereby reducing the demand for goods and subsequently stabilising prices.
Malaysia however has what is considered a high household debt, with a ratio of 84.5% of debt to GDP.
"Salaries are not going up, and many households in Kuala Lumpur are going into debt in order to survive," Farid said.
"When the OPR rate is increased, it becomes more difficult to borrow money from banks because the banks may be more cautious in approving loan applications.
"Given that more money is needed to buy the same goods, more Malaysians will fall into the trap of household debt."
Farid also agreed that the increase in OPR would not necessarily solve the problem of high prices.
"When loan rates increase, SMEs have to raise their prices as well," he said.
"In the end, it's a lose-lose situation."
Even if the price of goods remained unchanged, he added, many might not have purchasing power as their money would go towards paying off debts.
Adillah meanwhile disagreed with only viewing the OPR as a sign of a stable economy.
"There are many studies that offer alternative measures of economic growth that take into account the well-being of the people," she said.
"It's not just the OPR, GDP or consumer price index."