But first, let’s get back to basics by getting to know OPR – an essential part of Malaysia's monetary policy. OPR influences various financial measures such as deposit rates, lending rates, interest rates and more.
The OPR is set by Bank Negara Malaysia's (BNM) Monetary Policy Committee* to determine the interest rate charged between banks.
You might be wondering...why is this important?
Well, it’s a common practice for banks to borrow and lend money to each other to maintain their Statutory Reserve Requirement (SRR)**. The OPR enables banks to meet unprecedented liabilities by ensuring a consistent and stable supply of cash.
Above all, the OPR serves as a fundamental framework for ensuring a stable economy and a well-functioning banking system.
So, how often is the OPR revised? BNM's Monetary Policy Committee convenes regularly to review the country's monetary policies including the OPR. Most often, slower economic growth results in lower interest rates to encourage spending and investment. In contrast, the OPR will be amended upwards when the economy has faster economic growth to increase borrowing costs and reduce spending. By doing this, the risks of an overheated economy, and subsequently inflation, are subverted.