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BNM Maintains OPR 1.75%: 3 Impacts on Malaysians

Updated 28 May 2021 – By Nisya Aziz


Boom! You’ve heard the news -  Bank Negara Malaysia (BNM) has decided to maintain the Overnight Policy Rate (OPR) at 1.75%. But, why?

Based on BNM official statement: "The MPC considers the stance of monetary policy to be appropriate and accommodative. Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will continue to be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth. The Bank remains committed to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery."

 
 




Okay, but what is OPR? 

To those who aren’t exactly sure what is OPR - it’s the benchmark for commercial lending and deposit rates, which will be charged by the lending bank to its borrower bank for the borrowed funds.

Additionally, the rate decided isn’t random but takes into account various economic indicating factors, such as inflation, economic growth, possible risks – basically, the overall economic outlook. BNM will adjust the rate according to how much money they want in circulation versus how much is tied up in savings.

 

How will it affect me, financially? Besides the weakening Ringgit...

1. Your cost of borrowing will be lessened.

A low OPR would trigger the local banks to adjust their lending base rate (BLR) and base financing rate (BFR). This would then indirectly affect the interest rates - which means low costs for borrowing or refinancing an existing home loan.



For example, Maybank’s Base Rate was at 2.75% before the OPR reduction announcement. Now, it’s at 2.5%.  With this, the interest rate for existing floating rate loans will be adjusted accordingly, which means borrowers would see a reduction in their monthly payment. And, the new loans will follow the current rates.

So, whether it’s a car loan, personal loan, credit cards or home loan, you will benefit from the low OPR. As a consumer, your spending capacity will increase and you’ll able to save. Not to mention, you’ll be able to make repayment for a shorter period.
 
 

2. Interest earnings from savings and fixed deposits will drop.



If you have high savings or are investing in fixed deposits, do know that the low OPR or OPR cut isn’t something you’ll be happy about. This is because the interest rates on these accounts will be reduced if there's a cut or just low interest.

Perhaps, you want to re-assess your savings or investment strategy so that you can get optimal returns. Having said that, if you’ve placed your money before the revised rate, it’ll remain the same.



 3. It’s a great time to invest in Malaysian real estate investment trusts (M-REITs).



Because of the lower interest payments, it can guarantee more savings and a larger disposable income for you investors out there. You could also increase your investment.

In 2020, Affin Hwang Capital Research shared that over the long run, a low OPR should also lower the finance costs of MREITs and lift earnings, although the impact on near-term profit to be minimal. 


So, what are your thoughts on the new OPR? Share with us.


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