Oil Price Hike in Malaysia 2008 to Rm 2.70 Per Litre (Discussion)

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  • Topic: Inflation, Economy of Malaysia, Bank Negara Malaysia
  • Pages : 2 (399 words )
  • Download(s) : 133
  • Published : August 25, 2008
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Oil price hike in Malaysia

The recent fuel price hike of 40.6% to RM2.70 per litre of petrol has major negative impact on the economy of Malaysia. The inflation rate spirals and the concern of interest rate hike dampen the economy mood. The Government propagated that although there is a steep increase in the petrol price, our petrol price remains lower in the regions. However, in fact our price of petrol at RM2.70 is among the highest globally on the purchasing power parity (PPP) basis.

While the neighboring countries increased the interest rates to curb the inflationary pressure, Bank Negara maintained the Overnight Policy Rate at 3.5% to sustain the economy growth. Whether or not Bank Negara raises the interest rates, the economy would suffer from uncontrollable inflationary pressure or slower economy growth. This dilemma is suffered by all the Central Banks and there is no confirmative conclusion on its solutions. However, the fact that Malaysia suffers seriously from the second spiral of inflations from the indiscriminately rise in prices of consumer products other than the petrol itself warrant grave concerns. If the inflation rates are soaring while the interest rates remain constant, the negative real interest rates would harm the economy tremendously. Extending the controlled price items list is one of the measures to address the inflationary pressure faced by Malaysia.

Even though there are harmful effects from the petrol price hike, the move is imminent but gradually. While the recent oil price hike is primarily contributed by the speculations which may be corrected over time or harshly with the changing policies of raising the margins level of the oil futures market rather than the fundamental force of supply and demand, the peak oil theory still holds. Nonetheless, the huge quantum of the recent petrol price hike is unsupportable by Malaysian economy though the petrol price hike prompts Malaysians to use the petrol more efficiently....
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