OPR Cuts Affects The Pockets Of Malaysians?

Economic Perspective and Consumer Impact – Business Today asks an entrepreneur to share his thoughts

- Hann Liew

When our central bank changes the overnight policy rate (OPR), the business pages light up. But what about average Malaysians? Not many people bat an eye, when in fact an OPR change affects many people across the country. While we may not be able to directly affect a change in OPR, there are several ways people can capitalise to maximise their personal savings.

Let’s first start with what an OPR is, its function and why it changes.

OPR A TOOL FOR MONETARY POLICY-MAKING

Overnight policy rate is the rate at which banks lend money to each other to keep the banking system balanced. Set by the Monetary Policy Committee (MPC) at Bank Negara Malaysia (BNM), the OPR then directly affects the Base Rate (BR) and Base Lending Rate (BLR). These rates along with a formula from BNM produces the retail interest rates consumers see in everyday banking products. This is why more Malaysians should be paying attention to the OPR. A change in OPR means a change in BR and ultimately a change in the interest rate on products like home loans and fixed deposits.

But why does BNM change the OPR? The rate is a key facet to our monetary policy and is an instrument to influence the flow of money in the country. When interest rates are higher, this deters borrowing and encourages saving, which reduces the amount of money in circulation. This is typically a strategy to tackle inflation and high consumer debt.