What is the Overnight Policy Rate (OPR)?
As of 7th of July, Bank Negara Malaysia has decided to reduce the overnight policy rate (OPR) by 25 basis points to 1.75%. The central bank said the impact of the COVID-19 pandemic on the global economy is severe.
The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.00% and 1.50%, respectively. The impact of COVID-19 on the global economy is severe with global economic conditions remaining weak with global growth projected to be negative for the year.
This is the fourth time that Bank Negara Malaysia has announced to lower the OPR for this year. Back on March 3, 2020, Bank Negara Malaysia announced that the overnight policy rate would be reduced by from 2.75% basis points to 2.50%. And earlier this year on January 22, 2020, Bank Negara Malaysia stated that the overnight policy rate would be reduced from 3% to 2.75%.
Through this, it is expected to bring a lot of positive effect on the Malaysian economy, included the BLR and Malaysian Ringgit exchange rate.
How does it affect housing loans?
As a homeowner, the cost of borrowing will be lessened. A lower OPR would trigger banks to adjust their lending base rate (BLR) and base financing rate (BFR). This would then indirectly affect the interest rates – which means lowered costs for borrowing or refinancing an existing home loan.
Lowering the OPR will boost the economy overall
First of all, why did Bank Negara Malaysia decided to lower the OPR? It might be due to boosting the economy because when the OPR is lowered, the interest rate of any savings will also be lower too.
Through such development, people will be more willing to withdraw money from Fixed Deposits and focusing on investments.
Naturally, the first choice of investment would be property due to the stability of it. If you are considering to invest in the property market, you might be interested to read more about “Top 3 places to invest in Kuala Lumpur for 2020“.
If you do not have any plans on buying a house, you should probably start a plan.
Why do you ask?
Because by lowering the OPR, the action will impact the house loan interest too.
For homebuyers, the house loan’s interest is quite a high proportion to the loan. Yet, once the OPR is lowered, the bank will also lower the interest rate and immediately inform the buyer about the new rate and monthly payment amounts.
If you are a house buyer and did not receive any notices within the first three or four months, you might need to check in with the bank.
In layman terms, by lowering OPR it allows homebuyers more savings than their house loan’s interest.
The opportunities for investors
Currently, the property overview in Malaysia heading towards the direction of where supply is more than the demand. For an investor, you can grab the chance to invest at the moment and once the momentum of demand is higher than the supply, you can earn twice than the usual.
In conclusion, the decision to lower the Overnight Policy Rate is to encourage every Malaysian to spend or invest through any bank of their choosing – allowing the boost on the fund’s liquidity and to assist the growth of the economy.
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