Analysis of lending interest rate and economic activities in Malaysia

The interest rate has been a major issue worldwide, as well as in ASEAN countries. It shifts almost every minute driven by lots of factors. The main goal of this research is to look at the relationship between lending interest rate with the macroeconomic variables related to economic activities including during crisis periods and to forecast the rate in 2020. Approaches used in the study include line charts, multiple linear regression model and the ARIMA model. The paper utilized annual data period between 1971 and 2019 in.Malaysia which includes three crisis periods while forecasting into the fourth crisis as we currently face the COVID-19 period. The result shows that the lending interest rate has somewhat negative correlation with the macroeconomic variables throughout three major financial crises in Malaysia. The GDP growth and manufacturing are found to have significant effect on the lending interest rate via multiple linear regression. However, the industry and the agriculture have no significant impact on the lending interest rate. As COVID-19 fractured world economies and led countries to great depression, worldwide central banks decided to take action to lower interest rates to significantly boost consumer spending and cash flow. Due to this reason, the findings revealed the actual value of lending interest rate in 2020 is 3.51 while as the projected value of lending interest rate in 2020 is 4.85 which indicates that the actual value is slightly smaller compared to the forecasted value.