On 22 January 2020, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 2.75%.
According to the statement released on BNM’s website, the ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 3.00% and 2.50% respectively.
Ok, so what does this mean and how would it affect our loans?
First of all, you might want to know, what is OPR? OPR is the rate a borrower bank must pay to a lending bank for the borrowed funds. When the OPR is changed, lower or higher, it will affect the interest rates subsequently.
So, it’s good news for new property purchasers as they will get to enjoy cheaper home loan as the initial interest rate offered by banks will be lower. Tried and tested, in May 2019, loan approvals went up by 13% when the OPR was reduced from 3.25% to 3%.
For those who are already servicing a loan and do not have a fixed rate when they took it up or in other words, signed up for a ‘floating’ rate, they will get to enjoy lower monthly payment for their home loan. A notification letter will be sent out 7 days before the bank activates their revised monthly instalment rate.
Another possibility for flexible loans is that the loan tenure can be shortened accordingly while the monthly payment rate is maintained. This, of course, depends on the option you selected and the loan agreement involved.
BNM, upon announcing the latest OPR, quote that “the adjustment to the OPR is a pre-emptive measure to secure the improving economic growth trajectory amid price stability”. This move acts as a measure to encourage consumer spending and spur loan activities intended to stimulate the domestic economy.
So, this would probably be a good time to get back in action and revise your home loan application. This revision is, after all, the lowest since 2011. It was once reduced to as low as 2.5% in 2009.
On another note, The Star reported that with the OPR cut, banks are under pressure as shares of banks fell and dragged the FBM KLCI into the red as a rate cut would impact their net interest margins.
OCBC Bank economist Wellian Wiranto told the paper, “The out-of-left-field nature of the cut, plus a tell-tale wariness on both global and domestic growth drivers in the statement, signal this may not be the last cut for the year – especially if economic momentum does not pick up,” he said.
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