How Will The OPR Hike Affect Your Finances?

Fatin Haris

Fatin Haris

Last updated 26 September, 2022

When the world was affected by the COVID-19 pandemic, Bank Negara Malaysia (BNM) reduced the Overnight Policy Rate (OPR) to a historic low of 1.75% to boost the economy and avoid recession.

Read more: 2020 OPR Cuts: What Does This Mean For Malaysians?

Now that the world is slowly recovering and everything is going back to ‘normal’, BNM continues to adjust the OPR to reduce inflationary pressures. So what does that mean to us? Before we go into details, let’s recap on what OPR is.

OPR is an overnight interest rate set by BNM. It can affect employment, economic growth, and inflation. It is also an indicator of the health of a country's overall economy and banking system. 

A rise in OPR would mean that banks will increase the base lending rate (BLR) and base financing rate (BFR) because a rise would directly influence both. BLR is the rate that is determined by conventional banks based on the cost of lending to consumers. While BFR is a rate determined by Islamic banks based on the cost of lending to consumers.

Therefore the rise of OPR will result in a higher interest rate or profit rate for loans that are tagged to BLR or BFR. For example: Assuming that a loan has a BLR of 6.60%.  A 0.25% hike in OPR will then increase BLR from 6.60% to 6.85%.

Let’s dive a little deeper into how the OPR hike will affect your finances.


Effect of OPR hike #1: You’ll be paying higher interest rates on your loan

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Do you have any loans with a floating interest rate policy? As the name suggested, floating or variable interest rates can change according to economic or financial conditions. So, whenever the OPR hikes up, will your loan interest? This then will increase your monthly installment payments!

Check out simple calculations done here to better understand how the OPR hike will cause you to pay more interest!

Effect of OPR hike #2: Longer loan tenures

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Alternatively, if you feel that you cannot commit to higher monthly payments, you can opt for a longer loan tenure instead.

If you choose to extend your loan tenure, note that you’ll be paying higher interest rates for your loan and if you want to increase your monthly payment, it means that you’ll need to re-work your cash flow. 

Whatever your choice is, make sure to think about your decisions thoroughly as it will affect your finances in the long run. 

Effect of OPR hike #3: You’ll earn more from savings and fixed deposits!

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Finally, some good news! If you have savings and are investing in fixed deposits, you’ll notice a better return on your investments as interest rates on these accounts will increase as well.

Thinking about investing in fixed deposits? Read this article to find out about 4 different fixed deposit alternatives in Malaysia!

Related: Updates on OPR by BNM

Effects of OPR hike #4: Harder to get loans from banks

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Another negative impact of the OPR hike is it's harder to obtain any financial aid from banks as they have to tighten the prerequisite requirements to approve loans. This is because the loan interest rate increases as the OPR increase. 

BNM will continue to adjust the OPR carefully and strategically to support the country's growth and as consumers who may or may not be affected by this measure, we should at least understand to prepare our finances for any possibility in the future.