(Image: The Sun)
*The commentary below is given by Hann Liew, CEO of RinggitPlus.
Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) announced yesterday a reduction in overnight policy rate (OPR) by 25 basis points, from 3.25 per cent to 3 per cent.
According to BNM, the OPR cut is intended to spur monetary accommodativeness and counter slow economic growth amid growing global uncertainties.
While we see these as issues of national concern, at RinggitPlus we have been analysing how this cut will affect Malaysians in their everyday lives.
What does it really mean for the pockets of Malaysians
At this point, we can expect several ways this change will affect how and when people borrow and save money.
Banks in Malaysia will generally move their deposit rates and lending Base Rates in line with moves in OPR, so a cut in OPR will be generally followed by a cut in those rates, which means lower interest rates for both savings and loans.
So, in short, good for people looking to take out loans, and not so good for people looking to save money.
Both credit and savings products such as home loans, car loans, fixed deposits and savings accounts will be affected, although not immediately, and this is a window of opportunity – especially for savers.
The following are some tips for Malaysians to get ahead, before banks begin rolling out this change to their consumers.
Good for borrowers
There are two considerations to make when thinking about loans in the face of this OPR cut. First, does the loan product have a variable or fixed rate? Second, are you an existing borrower or are you looking to borrow in the near future?
Car and personal loans are typically fixed rate loans, which means the interest rate for the loan does not change throughout the period of the loan.
Current borrowers on fixed rate loans will see no change as a result of this OPR reduction by BNM.
However, if you are looking to take out a new personal or car loan, it may be prudent to wait until the banks readjust and reduce their interest rates on these products over the next few weeks.
Home loans, on the other hand, typically have variable rates. This means that the interest rate can fluctuate over the course of the loan period.
As a result of this OPR cut, we expect home owners with existing loans to be paying roughly RM20 less on their monthly installments for every loan amount of RM100,000, once the changes are reflected onto the banks’ respective Base Rates.
Save now, before new rates take effect
Conversely, a lower OPR and subsequent adjustments in banks’ own internal rates, means lower interest rates on savings products such as current and savings accounts, and fixed deposits when the banks start rolling out new rates.
As banks begin to roll out this rate reduction through to their fixed deposit products, we will be seeing adjustments downwards in deposit rate promotions for consumers to capitalise on.
Therefore, if you have the means to deposit, it might be wise to do so immediately before the interest rates begin to drop.
For the good of the country
While the decisions made by our government, or in this case, our central bank, are in the interest of the country as a whole, they may not be easy to understand.
Here’s where we, at RinggitPlus, will do our best to make understanding these changes simpler, with the hopes of empowering Malaysians to make smart choices to maximise their money.