Bank Negara reduces OPR by 25BP

Bank Negara Malaysia has effectively reduced the OPR (Overnight Policy Rate ) by 25 basis points. This is around 0.25%. This would meant that Bank Negara in Malaysia would have to follow the OPR guidelines and to reduce their BR (Base Rate) by 0.25%. Literally all interest rates would have to be reduced with the latest announcement by Bank Negara Malaysia

How does it effect me?

Changes in Interest Rates effects the whole country’s economy and thus almost everyone with or without a loan is effected.

Benefits of Interest Rates reduction

Interest rates reduction punishes savers and rewards heavy debtors. If you are servicing any flexible interest loan such as house loan , you will see a small amount of decrease on your monthly installment statement. Loan such as Islamic based loan, Car Loans and Personal Loans(fixed interest) will not have any benefit as these loans interest are fixed throughout the whole loan tenure. This means that whatever you loan is the same from the start.

Unfortunately Fixed Deposit and Saving account interest rates will be reduced too. This means that whatever money you put in the bank will produce lower interest rates.

Winner of OPR Reduction

Property developer will be able to see benefits as loans are getting cheaper. Heavy debt and leveraged people are also able to see some benefits due to interest reduction.

I don’t have a loan will it effect me? 

Yes. Reduction of interest rates will create money supply thus increases inflation. This means that Malaysian Ringgit value will be dropping as Interest Rates are reduced. At the time of announcement the rate of USDMYR has increased to yearly high of 4.195. This means that investor are dumping ringgit due to lower interest rates. Inflation and Ringgit devaluation will ultimately reduce purchasing power and make goods more expansive.

Overall, the reduction of Interest Rates may help spur the economy a little bit if implemented wisely.