Bank Negara Malaysia decided to lower the Overnight Policy Rate (OPR) by 25bps to 3.00 percent today. This was somewhat expected, which also prompted Mrs Money to try to renew some deposits prior to the BNM meeting.
The OPR was reduced to accommodate growth and in view of the current slowing global demand and heightened downside risks to the Malaysian economy.
I thought of listing down some areas in which the OPR change affects our personal economy.
- Equity – lower interest rates tend to boost the stock market since it eases the funding cost for companies. The financial sector is an exception, especially banks with high net interest margin earnings which will face some pressure.
- Mortgages – lower interest rates usually means lower mortgages for home owners. I doubt that we can expect a 25bps decrease in our mortgages but there should be a significant reduction in rates which in turn would spur activity in the real estate sector.
- Bonds – Existing bond holdings with fixed interest rates will increase in value since the differential with the OPR will be higher.
- Fixed deposits – banks will lower the rates for fixed deposits to reflect the lower OPR.
- Currency – A reduction in interest rate decreases the value of the currency since its yield is lower. The MYR should depreciate in value due to the change in OPR.
For myself, the impact on equity, mortgage and bonds will have the largest effect to my assets. Therefore, I welcome this OPR reduction that will hopefully further spur my asset growth as well.
How will the OPR reduction affect you, Money Makers?