May 10, 2020
What Does the OPR Cut in 2020 Mean for Malaysians?
The OPR was reduced to help cushion the economic impact of the COVID-19 pandemic.
“Global economic conditions have weakened significantly. Measures to contain the COVID-19 pandemic have disrupted economic activity across most economies,” said BNM in a statement that was released today.
“The Movement Control Order, while necessary to contain the spread of the virus, has also constrained production capacity and spending. Labour market conditions are also expected to weaken considerably. Economic conditions would be particularly challenging in the first half of the year,” it added.
However, fiscal stimulus measures, alongside monetary and financial measures, will offer some support to the economy. The OPR reductions, amounting to a total of 100 basis points this year, are expected to complement these measures.
While global economic conditions don’t look rosy at the moment, BNM expects things to improve.
“Substantial policy stimuli introduced by many economies, coupled with the gradual easing of containment measures globally, would partially mitigate the economic impact of COVID-19. Growth prospects should improve in 2021 with the expected containment of the pandemic,” it said.
How Does It Affect You?
Consumers will have more cash on hand to spend, which will likely spur the domestic economy.
Lower Interest Rate
Any changes in the OPR will impact loans that use the Base Rate (BR) or the Base Financing Rate (BFR) to determine the interest rate by which it will lend to consumers.
If the OPR reduces by 0.50%, and banks decide to stick to their current profit margins, then your loan’s BR will also reduce by 0.50%. This will lower your loan’s interest rate.
For example, if your mortgage loan is pegged to the BR, and OPR reduction will lead to a lower mortgage interest rate, which means that you’ll be paying lower monthly repayments. Here’s an example of how this works:
Lower returns for savings accounts and fixed deposits
Though an OPR reduction is good news for those taking out property loans, savers looking for more returns on their savings accounts and fixed deposits will be disappointed. The interest rates for these savings instruments will be reduced in tandem with the OPR cut.
But this won’t affect any fixed deposits that you have placed prior to the bank’s revision of fixed deposit rates.
