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Bank Negara Malaysia (BNM) reduced the overnight policy rate (OPR) by 50 basis points to 2% on 5 May 2020. This is the third OPR reduction in 2020 and this latest OPR rate was made to ease the economic impact of Covid-19. 

 

What is OPR?

 

  • The OPR is the interest/profit rate where a bank lends/give financing to, or receive investment from, another bank.  

  • OPR is determined by BNM in the Monetary Policy Committee meetings held throughout the year. The rate is adjusted from time to time – and BNM takes into account various economic indicating factors to determine the rate. 

 

So how will the new OPR rate impact you as a business owner? 

Lower interest rate/profit rate for loans or financing

 

When BNM lowers the OPR rate, most banks in Malaysia will follow suit and reduce their Base Lending Rate (BLR), Base Financing Rate (BFR) and Base Rate (BR). This can effectively lower the interest rates (or profit rates for Islamic) for various loans (or financing for Islamic) such as flexi home or property loan, car loan and personal loan.

 

The lower interest or profit rate can lead to lower instalments. This makes it easier for you to keep up with existing or new monthly instalments – and you might also find that your loan or financing terms are reduced due to the lower amount of interest/profit. The lower interest/profit can also be useful if you are considering acquiring financing from a financial institution. 

 

Did you know: BLR is the interest rate determined by conventional banks based on the cost of lending to consumers, while BFR is the profit rate by Islamic banks to determine the same. 

Increase in consumers’ spending capacity

The reduced OPR can help to encourage borrowing/financing and spending that will stimulate our country’s economy. With the lowered interest/profit rates, Malaysians will possibly have more disposable cash – this means an increase in spending and saving capacity.

 

Hopefully, this will translate to more revenue and cash flow for your business. The sectors that usually benefit most from an OPR reduction include property, construction, discretionary goods, and exporters.

 

The reduced interest/profit and lower instalments also give you more cash that you can put to good use for your business. 

Lower interest/profit in savings

While the lower OPR may benefit those with loans/financing, it also means that interest/profit rate for savings and fixed deposits might be lower. But worry not, this can be a good opportunity for you to reassess your business investments and savings. We are always here to help should you need more advice for your business.

 

Knowing and understanding OPR and how it affects lending/financing and savings is important in predicting how your business might do. It’s also important if you need to take out a loan/financing in the future. 

 

This article is brought to you by CIMB as part of our ongoing efforts to raise the level of financial literacy among Malaysians. Financial knowledge and understanding are key to making well-informed and meaningful financial decisions that will improve our well-being. This, in turn, achieves CIMB’s purpose of advancing customers and society.

 

 

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