What is Overnight Policy Rate (OPR) in Malaysia?
The overnight policy rate (OPR) is a vital part of Malaysia's monetary policy. It can have a profound impact on a broad range of critical financial factors, from deposit rates and lending rates to foreign exchange rates and, most importantly, home loan interest rates.What you are probably wondering is, how does OPR relate to property, and what does it matter to you?
What is OPR?
Overnight Policy Rate or OPR refers to the interest rate at which commercial banks lend or borrow funds from the central bank, Bank Negara Malaysia (BNM), overnight. The OPR helps commercial banks manage their liquidity and assist BNM in regulating the money supply in the economy. The OPR is also known as the base interest rate as it is the rate at which other interest rates are determined.
For example, the OPR affects the interest rates of loans and deposits, as well as the foreign exchange rate. In recent years, the OPR has been used as a tool to stimulate the economy, and BNM does this by setting the interest to a higher or lower rate.
How will OPR changes affect my housing loan?
When the Overnight Policy Rate (OPR) is increased, it will affect variable housing loan rates. In simple terms, an increase in OPR will cause an increase in your monthly repayments. If you have an existing housing loan with a variable interest rate that is based on the OPR, you should expect your monthly repayments to increase.
While an increase in OPR may seem like bad news, it is essential to remember that it is only one factor that affects interest rates. The OPR is just one of many factors that banks consider when setting interest rates. So, while an increase in OPR may cause interest rates to go up, it is not the only factor that will affect interest rates.
What is the current rate of OPR in Malaysia?
As of May 2023, the central bank (BNM) has revised the OPR rate to 3.00%. This is a 0.25% increase from the 2.75% rate in November 2022.
For reference, here are some records of OPR.
Lowest recorded OPR: 1.75%
Highest recorded OPR: 3.50%
11 May 2022: OPR rate increased by 25bps to 2.00%
06 July 2022: OPR rate increased by 25bps to 2.25%
08 September 2022: OPR rate increased by 25bps to 2.50%
03 November 2022: OPR rate increased by 25bps to 2.75%
03 May 2023: OPR rate increased by 25bps to 3.00%
To find out the complete list of OPR, you may click here: https://www.bnm.gov.my/monetary-stability/opr-decisions
According to BNM, this may sound bleak for home-buyers on rising costs, but they assured this process will be performed at a calculated and progressive pace to maintain the nation’s economic growth sustainably amidst a volatile environment of price stability.
Should I buy a home despite an increase in OPR?
An increase in OPR should not be a deal breaker to buying a house, as it is an overly simplistic conclusion to reach. While the rise in interest rates does affect the affordability of purchasing a home, making your monthly housing loan repayment more expensive, you should also look at other factors such as special waivers, rental yield, and properties with capital appreciation opportunities.
Prices of properties are increasing at an alarming rate too. If you don't buy now, you may miss your chance. The rate of capital appreciation may surpass OPR, making it even more challenging to own eventually.
Also, it is crucial to keep in mind that OPR rates are volatile, and they can be adjusted multiple times in one year, as what has occurred in the past few years.
Hence, it is essential to factor in a degree of flexibility when budgeting for your mortgage, as interest rates are subject to change. This will provide a more accurate assessment of what you can afford.
