When the country is facing inflation with the increase in prices of various necessities, the increase in OPR to some extent causes concern among the people. However, it is important that we first understand what is meant by OPR. By understanding the meaning and mechanism of the new OPR, a more fair and rational assessment can be made, whether the increase will affect our finances or not.
OPR or Overnight Policy Rate refers to the overnight interest rate set by the central bank or Bank Negara Malaysia (BNM). It is the interest rate that must be paid by a financial institution that borrows from another bank. In daily operations, the bank’s cash reserves fluctuate, depending on the lending activity that takes place in the bank, as well as deposits and withdrawals made by its customers.
Malaysia’s Overnight Policy Rate was maintained at the lowest level in history at 1.75% for almost 2 years (July 2020-May 2022) since it was reduced from 3.0% in 2020 due to the Covid-19 epidemic that hit Malaysia. 1.75% is the lowest OPR in Malaysia’s national record, according to BNM data dating back to 2004 on its website. Bank Negara Malaysia’s decision to raise loan interest rates aims to ensure price stability and long-term economic growth sustainability. It also aims to avoid excessive domestic demand that could add to inflationary pressure.
The reduction of OPR at that time was necessary to stimulate the economy which was largely closed due to the MCO. When the OPR is lowered, the cost of the loan will also decrease. This will put more cash in people’s hands to spend and allow more consumers to borrow, including small companies that have to bear losses when the economy shuts down. In this way, the country’s economy can continue to move even if it slows down due to the pandemic.
OPR changes will affect the interest rate of the loans we take. This includes housing and personal loans. The higher the OPR, the higher the monthly payment to be paid. However, the value is not too large considering that the OPR change is usually in the minimum base value. In any case, consult the bank when there is a change in the OPR to get a clearer picture. You are advised to control expenses and manage finances to face the current high cost of living which is considered temporary before the economic situation stabilizes again.