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Overnight Policy Rate Reduce To 3%, How Will It Impact In Property Market?

What is Overnight Policy Rate (OPR)?

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. OPR is the interest rate at which a depository institution lends immediately available funds (balances within the central bank) to another depository institution overnight. 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.

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.

In short, the Overnight Policy Rate is the interest rate set by Bank Negara Malaysia (BNM), which will be charged by the lending bank to its borrower bank for the borrowed funds.

History of OPR for the Past 10 Years


– In 2016, the OPR was reduced from 3.25% to 3%, with the reduction of 25 basis points. This is the first reduction in seven years, as the previous cut was only made in the year 2009.

– In 2009, the OPR was reduced to a historic low of 2% and was raised again in the year 2010 to 2.75%.

– In 2011, the rate was increased again to 3% and was maintained till the year 2013.

– From the year 2014 to 2015, the rate was set at 3.25%.

– Prior to 2009, the OPR was set at a historical high of 8.25% in the year 1998 during the recession and dropped drastically in the year 1999 to 3.25%.

Reasons of Reduction In OPR

The timing of lower down the OPR was more than suitable with inflation remaining low, the ringgit being stable and poor global economic conditions being conducive. Based on MPC’s statement, the cut was largely motivated by the softer external outlook due to Brexit The adjustment to the OPR is intended for the degree of monetary accommodativeness to remain consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid stable inflation, supported by continued healthy financial intermediation in the economy.

Impact In Property Market After Reduction In OPR

Alter in the OPR will bring out a chain of events that affect the Base Lending Rate (BLR) and Base Rate (BR), 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.

Bank Negara Malaysia’s (BNM) decision to cut the overnight policy rate (OPR) by 25 basis points to 3% is expected to have a positive impact on borrowers and the property sector. It will caused banks to reduce the Base Rate(BR) in order to maintain the competitiveness in the market. When banks decrease their BR, the cost of loans will be lower, making current borrowers and property buyers the winner.

For those who have saved money in the bank will lose as fixed deposit rates will decline in line with BLR. People will prefer to use the FD saving to do some long-term or short-term investment in property rather than save the money in bank to enjoy the lower rate. Nevertheless, now is a good time for borrowers to look for banks offering better interest rates and to refinance loans, but it still depends on whether the existing loans are subject to a lock-in period.

Lower OPR would spur economic growth and home ownership. This will ease the burden on property purchasers servicing their home loans as their monthly repayments for the loans will be lower and they will have extra money in hand to spend. This reduction also means that more property purchasers will qualify for home loans and it will especially benefit first-time homebuyers. The reduction is also good for property developers who have high gearing or
plan to borrow future funding from banks as it will reduce the cost of borrowing. Therefore, with lower monthly repayments and everything else remaining the same, the amount of people qualifying for mortgages should increase.



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