Bank Negara Malaysia has reduced the Overnight Policy Rate (OPR) for the third time in 2020 by another 50 basis points (bps) to 2.0% due to the COVID-19 outbreak. This is the lowest value in over a decade.
what’s OPR rate and it’s influence
The overnight policy rate is an overnight interest rate set by Bank Negara Malaysia (BNM) used for monetary policy direction.
It is the target rate for the day-to-day liquidity operations of the BNM. The overnight policy rate (OPR) is the interest rate at which a depository institution lends immediately available funds (balances within the central bank) to another depository institution overnight. The amount of money a bank has fluctuates daily based on its lending activities and its customers’ withdrawal and deposit activity, therefore the bank may experience a shortage or surplus of cash at the end of the business day.
Those banks that experience a surplus often lend money overnight to banks that experience a shortage so the banking system remains stable and liquid.[This is an efficient method for banks around the world to practice ‘Accessing short-term financing’ from the central bank depositories.
The interest rate of the OPR is influenced by the central bank, where it is a good predictor for the movement of short-term interest rates to help temper inflation and rising consumer debt and to encourage consumer spending and spur borrowing activities which in turn, will stimulate the domestic economy
Changes of OPR will afftected your base lending rate.
Changes in the OPR trigger a chain of events that affect the base lending rate (BLR), short-term interest rates, fixed deposit rate, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services which is the micro and macro factors on the economic.
Benefit from OPR cut
With the bank’s loan products, the OPR has a direct influence on a bank’s Base Rate (BR) & Base Lending Rate (BLR), where the BR & BLR usually reduces or increases in tandem to an OPR cut thus to beneficial to current and new borrower as they could leverage on the lower initial interest rate .