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Since the Covid-19 outbreak started, many countries have adopted measures to bolster the economy against a major decline. Bank Negara Malaysia (BNM) announced in May 2020 that it was slashing the OPR down to 2%*. On 7 July 2020, BNM further slashed the OPR down to 1.75%**.

 

But what does it mean to you and your finances? Let’s take a look at what the OPR is all about, how it affects your loans and cash flows and what you can do with your finances. 

 

What is OPR all about?

 

The OPR is the general interest rate that Bank Negara issues for banks to lend funds to one another. A bank sometimes borrows money from its peers to meet the needs of customers’ banking activities. Much like any other loans, these borrowings incur interest.

 

The same bank could also lend funds to another bank when it has excess cash – and make an income from the interest. The base interest rate that the bank uses is what we call OPR and it determines how much each bank borrows and lends to each other, which ultimately impacts your borrowing and lending rate.   

Why YOU should care about OPR

 

The reduced OPR will have two notable effects on your finances: lower interest rates on loans and lower savings returns. We won't be seeing high rates of return on savings accounts and fixed deposits while the OPR is low (but FDs that you made prior to the revised OPR will remain at the same rate).

 

So, what can you do with your finances? If you’re in need of a loan, you can take advantage of the lower interest rate and apply for it now. As for current loan payers, you will be glad to know that some of your current monthly interest repayments might be reduced. This means extra money in your pocket! Before you start spending the cash, concentrate on these two must do’s:

 

  • Use the extra cash to build your emergency fund:
    As we’re preparing for a possible economic downturn, it is more important than ever to have an emergency fund ready. If you’re struggling to save up for a minimum of 6-months’ living expenses, you can use the extra cash to beef up your savings!

 

  • Build an investment portfolio:
    If you have your emergency fund sorted, you can use the extra cash to build your investment portfolio that may give you better returns in this economic climate. So why not diversify and look at other investment opportunities to grow your money? From Unit Trusts to gold, there are plenty of options for you to try out. If you’re having doubts about where to park your investment, you can always speak with us to find out more. 

The OPR reduction is part of a measure to stimulate spending and economic activity amid a cautious environment – due to the Covid-19 impact on Malaysia’s economy. Make savings a basic rule of thumb, but any additional savings can be reallocated strategically. More details on how the OPR affects CIMB’s Base Lending Rate or Base Financing Rate is available here.

 

 

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 all our well-being. This, in turn, achieves CIMB’s purpose of advancing customers and society.

 

Source:

 

*https://www.bnm.gov.my/index.php?ch=mone&pg=mone_opr_stmt

** https://www.theedgemarkets.com/article/bnm-cuts-opr-25bps-175