Recently, BNM (Bank Negara Malaysia) has announced the decision to leave OPR (Overnight Policy Rate) unchanged at 3.25%. Many young investors may eager to look for explanation of OPR and its purpose.
OPR is referred as Overnight Policy Rate and it is set by BNM to decide a reference rate between depository institutions. It is one of the tool for executing monetary policy by any central bank of the world to influence a particular situation in economy for short term. In contract, fiscal policy like yearly budget is use to create impact for an economy for mid to long term effect. The decision to decide on the OPR by BNM can be very technical. It includes consideration on inflation, supply of M1 to M3, currency stability, current account surplus or deficit, import and export and etc.
In OPR relation to a property investor, it direct influences another rate called BLR (Base Lending Rate). BLR is a lending rate guideline set by commercial and retail banks in Malaysia for property loan. It fluctuates across time in accordance to OPR. As a result, it can also changes monthly installment values when BLR moving in either up or down directions.
Thus, it will be imperative to assess interest rate trend when investing in a new property with a loan. Whether the property return from potential dividend yield can accommodates the increase in cost of loan due to interest increase. Alternatively, a fix interest rate loan instrument should be also considered to hedge uncertainty from a fluctuating interest rate environment. Both type of loans have their advantages and disadvantages. A careful study of interest rate trend will definitely increase success rate of any property investment.
by joepoh (Property Investment Analyst)