Bank Negara has raised OPR (Overnight Policy Rate) by 25 basis points from the previous 3.00% to 3.25%. This move has been very much anticipated as Malaysia GDP growth accelerated to 6.2% as the first quarter of 2014. The Malaysian OPR rate has been stagnant since the May of 2011.
So how does it impact me ?
Malaysian Bank interest rates BLR(Base Lending Rate) operates based on OPR that is defined by Bank Negara Malaysia. Malaysian Banks will set their own BLR with the value defined by OPR. At previous 3.00% rate, A bank will add their own operating cost/margin and mark the interest another 3.60% which results in previous BLR of 6.60%(Do take note that although current major bank’s BLR is set a 6.6%, BLR may vary with different banks). With OPR hike of 25 basis point, there will be a possibility where the new BLR will be adjusted somewhere at 6.85%.
Impact of Interest hikes
The direct impact of interest hikes will cause loan products to be more expansive, fixed interest loan products will have their interest adjusted by banks with increase of OPR. OPR increase will definitely cause increase on loan repayment especially financial products that are tied with BLR such as home loans.
Case 1 Home loan ( BLR – 2.4%)
Before OPR Hike
RM 450,000 debts x 35 years repayment x (6.6% – 2.4% = 4.2%) = RM 2,046.83 ( Old repayment)
After OPR Hike
RM 450,000 debts x 35 years repayment x (6.85% – 2.4% = 4.45%) = RM 2,115.74 (New repayment) Extra RM68.91 montly repayment
Although the increase of RM 68.91 montly repayment is not a significance amount, a 0.25% of interest increment may result a 7% to 9% extra interest being paid over the loan tenure
Benefits of rising OPR
All is not bad news with higher interest rates. As a depositor, Saving and Fixed deposit interest rates may rise as results of OPR increase.
Malaysian Ringgit will also strengthens with the increase of interest rates thus this may improve Malaysians purchase power. This can actually be seen with highest Ringgit value since November 2013. When an economy grows, central bank can afford to raise interest rates to curb inflation. So prices of items may not rise as fast with increase of interest rates.
There is also market prediction that there will be one more round of interest rates hike at the end of 2014.
