O.P.R Cut by 0.25%

Bank Negara announced cut by 25 basis point for OPR (Overnight Policy Rate) on 7th May 2019. In their statement:

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

(ref: http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4850&lang=en)

OPR Cut - 2019

What is Overnight Policy Rate (O.P.R)?

The overnight policy rate (OPR) is the interest rate at which a depository institution lends immediately available funds (balances within the central bank) to another depository institution overnight.

(Quoted: https://en.wikipedia.org/wiki/Overnight_policy_rate)

When was the last adjustment? What was the adjustment?

The last adjustment was on 25th Jan 2018 with increase of 0.25%. For the full list of OPR movement since 2008, kindly refer to Bank Negara Malaysia website.

(http://www.bnm.gov.my/index.php?ch=mone&pg=mone_opr_stmt)

What does this has to do with me? 

The movement of OPR might trigger adjustment of interest rate for banks including fixed deposit, short-term or other long-term interest rate. And, if you have a Mortgage Loan, movement of OPR will trigger adjustment to your Base Lending Rate (BLR) or Base Rate (BR) which could affect your monthly instalment. In short, this shall followed by lower interest rate in both saving or loan products for banks.

What can I expect and what to do?

Since the adjustment will come in phases, if you have extra cash and decided to be deposited, you may want to log in longer and earlier. As you will expect the next deposit rate may be lower. At the same time, if you are looking for loan product with fixed interest rate such as Hire Purchase, Personal loan and etc, you might want to wait for the bank to make the adjustment.

Why does OPR set by Bank Negara?

In a simple way, it is used by Bank Negara as a way to either encourage spending or discourage spending. This is also one of the way to influence economy growth, inflation and even employment rate. Imagine, when saving interest rate is low, this will discourage public from deposit it with bank but to look for alternative such as capital market, bond or other investment opportunity. This will bring more money to the market to spur economy activities.

At the same time, when loan interest is low, it will also encourages borrowing activity that will stimulate economy. Businesses might take the opportunity for capital expenditure or business expansion since the cost is lower. This could also lead to more employment opportunity.

What is your view on the adjustment of OPR by Bank Negara Malaysia?

Feel free to share with us your view.