TLDR: Bank Negara Just Raised OPR, How Would This Affect Us Malaysians?

The new OPR rate has been set at 2.25% by the Malaysian central bank.

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Bank Negara Malaysia (BNM) today announced the increase of the overnight policy rate (OPR) by 25 basis points (bps) to 2.25%, with the ceiling and floor rates of the OPR increased to 2.5% and 2.0% respectively.

The decision was made by the central bank’s Monetary Policy Committee (MPC) as Malaysia had entered the endemic phase of the Covid-19 crisis beginning 1 April, with the OPR being set at a historically low rate during the pandemic.

For the record, the OPR – the rate of interest for financial institutions that lend each other money overnight – was set at 1.75% between September 2020 till May this year.

But how does the increase in OPR affects us Malaysians?

Paying more interest on your loans

Should your bank decide to pass on the hike to consumers, it means that your monthly repayments to your bank would increase.

According to iMoney, historically, banks will raise about 20bps to 30 bps for a 25 bps hike in OPR.

This would especially affect homebuyers, as those with housing loans of RM400,000 with terms of over 30 years could see their monthly repayment increase by RM55.

While you may not feel the pinch so much, the accumulated amount of interest that you need to pay can come up to a substantial amount over a long period of the loan.

Harder to obtain loans

The simple math is that the higher the OPR is set, the higher the cost of borrowing would be.

This would mean that there will be fewer capital financing opportunities for people and businesses as banks would tighten the prerequisite requirements for both personal and businesses to secure loans.

This might hamper the growth and sustainability of small enterprises that needed capital injection into their businesses.

Not all bad

BNM’s decision to increase the OPR could help sway more investment into the country as it indicates that our economy had recovered since the pandemic.

The move could also help strengthen the Ringgit, which in turn would help reduce our cost of living and inflation.

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