Will BLR in Malaysia increase or decrease?

Updated 23 May 2016 – By Loanstreet

Most home loans today are Floating / Variable Rate loans pegged to the Base Lending Rate (BLR) in some way or another. So it’s natural that questions on BLR get asked of mortgage officers a lot. “Will BLR in Malaysia increase or decrease?” “What is the forecast of the BLR trend in Malaysia?” And very popular as of this time of writing, “How will the general election (GE) affect BLR rates?” There are many who say it will go up, but enough detractors harp the opposite. So who is right and who is wrong?

Forecast of BLR in the coming years

In truth, it is a fool’s errand to predict interest rate trends in the coming years. Even Bank Negara Malaysia (BNM) makes interest rate adjustments based largely on close to current economic indicators. So there is likely none or insufficient basis for anyone making predictions. *BUT* it is important to understand what causes BLR movements.

Note: Base Financing Rate (BFR) used in Islamic finance tracks BLR closely.

Contrary to popular belief, BLR rates are not controlled by BNM, but are specific to individual banks. Banks determine their own BLR rates based on their internal cost of funds (how much it costs them to borrow money which they will lend out at a higher rate). And BLR rates are highly affected by the Overnight Policy Rate (OPR), which is the interest rate at which other banks lend to each other. OPR itself *IS* determined by BNM. Whenever the OPR changes, most banks will follow suit and change their BLR by a similar quantum.

But what causes BNM to move the OPR up or down? That’s a million dollar question. In short, if BNM’s objective is to have more liquidity in the system (more cash moving in the economy instead of tied up in savings), they would lower interest rates. If they wanted the opposite (mop up excess liquidity), they would hike interest rates.

The how’s and why’s of this belong in macroeconomics and monetary policy territory. BNM has to balance a whole myriad of factors including global economic outlook, inflation and growth, among others. These are separate subjects of its own.

Effects of General Election (GE) / National Budget on the BLR trend

As explained above, politics do not directly cause changes to BLR (or OPR for that matter). Also, the national budget is set by the government which determines with fiscal policy. Interest rates however, fall under the realm of monetary policy, which is determined by Bank Negara. Any effect of the GE or national budgets are indirect at best.

But to explain the cause-and-effect nature of things, in the event of civil unrest which results in an economic crash, there will be pressure on BNM to lower interest rates. The objective is to encourage people to borrow more and spend more money (instead of putting it in savings), which helps to shore up the economy. But if the economy does well and inflation starts to go unchecked, (E.g. Property prices increase too fast), then there will be pressure on BNM to do the opposite and hike interest rates.

Protecting yourself against uncertainty

Compared to Floating/Variable rate loans which are very common for housing loans, Fixed Rate loans can be taken to protect yourself against interest rate movements. It will work in your favour if interest rates go higher in the future. However, you will likely have to pay a premium for the predictability over existing floating rate loan packages.


So while it is difficult to forecast the BLR trend, we hope we have opened your eyes to what causes BLR movements and what you can do to protect yourself against uncertainty. Make use of our Home Loan Comparison tool to find the type of loan that best suits your needs. Or check the latest interest rates.

Continue reading...