The government hopes that this could give people more spending power for items including property purchases and drive the economy into recovery.
Times are hard, very hard, and the economy has suffered tremendously. As the world threads through a pandemic, a shift within the country's economic policies will undoubtedly follow as the situation has disrupted various industries, including the property market.
Due to this, adjustments to lower the Overnight Policy Rate (OPR) – essentially a backbone for monetary policies – have been made. Such changes in the OPR will affect several aspects of all industries. For the property market, the OPR has a direct effect on the Base Rate (BR) of banks.
The BLR is no longer in effect since 2015 as Malaysia has switched to the new BR system. Previously, the BLR, which was also known as the Base Financing Rate (BFR) for Islamic loans, was set based on the health of all financial institutions within the country. This rate essentially sets how much it would cost to lend them money.
The OPR is the interest rate set by Bank Negara Malaysia (BNM) that represents the cost of a bank lending to another bank – this was utilised as a benchmark for the BLR. The BLR was then set through a blanket formula that was calculated based on the Statutory Reserve Requirement (SRR).
However, although that has been replaced with the new BR system, home loans that were taken out prior to 2015 will still follow the BLR unless the property has been refinanced.
Now, with the BR system, banks are allowed to fix their own interest rates based on BNM's rate, which acts as a benchmark. Banks determine the BR using a set formula, which takes into account the bank's costs of the fund, the SRR, borrower's credit risk, liquidity premium, profit margin, cost of funds as well as the operating cost.
The OPR is still referenced with this system as it helps banks determine the interest rates which will affect their lending amount to consumers. Banks usually revised their BR on a quarterly basis.
As mentioned, the pandemic has caused a stir within the economy and because of this, relaxing measures have to be implemented to help the landscape recover from the Covid-19 hit.