Malaysia Interest Rate : OPR

In Malaysia, the interest rate decisions are taken by The Central Bank of Malaysia (Bank Negara Malaysia). The official interest rate is the Overnight Policy Rate.

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What is OPR?
Overnight Policy Rate (OPR) is an overnight interest rate set by Bank Negara.
​This overnight policy rate or interest rate is a rate a borrower bank has to pay to a leading bank for the funds borrowed.
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Still don't understand? Maybe I explain in this way. 
You may wonder why a bank would be borrowing from another bank, but you must understand that bank makes money by lending money out and not by keeping money. Thus, bank will lend out as much money as possible in terms of loans, and maintaining the minimal cash as requested by Bank Negara.  However, in the event that cash withdrawal exceeded the amount of cash available, the particular bank will need to borrow cash from other banks, and make an interest rate, which is the OPR.

• OPR rate has an effect on the country’s employment, economic growth and inflation.
• In brief, OPR is an indicator of the health of a country’s overall economy and banking system.

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Graph shown the Historical Interest Rate in Malaysia: 

Source: 

​https://tradingeconomics.com/malaysia/interest-rate

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3 times OPR Cut in year 2020 

2019-11-05
​Malaysia Keeps Interest Rate at 3%  

2020-03-03
​Malaysia Cuts Key Interest Rate to 2.5% 

2020-01-22
​Malaysia Cuts Key Rate to 2.75% Unexpectedly 

2020-05-05
​Malaysia Cuts Key Interest Rate to 2% 

Will OPR reduce again this July? 

https://www.thestar.com.my/business/business-news/2020/07/07/bank-negara-cuts-overnight-policy-rate-by-25bps-to-175

7 JULY 2020:  Bank Negara cuts overnight policy rate by 25bps to 1.75% ​

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I did a summary of the impact of OPR Cut to the Country & Individual: 

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1. OPR cut generally positive in impact for businesses and the economy.

• Economy: The rate cut is with the intention to boost household spending and boost the overall Malaysian economy. Inflation may increase. 
• Business: Generally positive as most businesses will fare better with lower borrowing costs and increased domestic consumer spending. Sectors that may benefit include consumer goods, discretionary goods, property, construction, and exporters.
• Banks: Reduced profitability with lower interest rates and thus profits reduced. The impact on banks net profit according to our calculations to be around -2% to -3%.
• Importers: there may be a negative impact for importers whose base currency is in Ringgit if there is any impact from a further weakening Ringgit due to the rate cut as the cost of goods would increase.​

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2. OPR cut Effect on individual

• Lower Returns for savings & Fixed Deposits. 
• Lower Loan interest rate. Whether it’s a car loan, personal loan, credit cards or home loan, you will benefit from the OPR reduction. For example, if your mortgage loan is pegged to the BLR/BFR, the OPR reduction will lead to a lower mortgage interest rate, which means that you’ll be paying lower monthly repayments.

BLR is the rate that is determined by conventional banks based on the cost of lending to consumers. 
​BFR is a rate determined by Islamic banks based on the cost of lending to consumers.

(CASH STUDY)
​Here’s an example of how this works if OPR cut 0.25% 
Loan amount : RM500,000
Loan tenure: 30 years
BR: 3.65%           BR: 3.65% – 0.25%= 3.40% 
Home loan interest rate
Before: 
4.45% (3.65% + 0.80%)
Monthly repayment : RM2,518.59
Total interest paid over 30 years : RM406,693

After OPR cut: 
4.20% (3.40% + 0.80%)
Monthly repayment:  RM2,445.09
Total interest paid over 30 years  : RM380,232.40

1. 0.25% reduction will result in RM26,460.60 savings over a 30-year loan tenure.
2. RM73.50 reduction in their monthly repayment. 
3. Over the loan period, you can see a savings of 6% and a monthly savings of close to 3%​ ​

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Latest Housing Loan Interest rate as at March 2020

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Below is the latest Fixed Deposit rate after OPR cut as your reference