Average Malaysian households are already in debt. According to Bank Negara, the average household debt-to-gross domestic product ratio is 83%, which despite being lower than in previous years, is still considered to be on the high side for a small economy.
Conventional economic theory presumes that when interest rates are brought down, households will tend to borrow more and spend on houses, cars and themselves. However, a prolonged period of low interest rates defies conventional economic logic.
In fact, a prolonged period of low interest rates will hurt the poor and vulnerable even more, especially when they are already in debt, there is no growth in wages and the economy is slowing.
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