Consumers get lower borrowing cost, more cash with OPR cut

MIDF Research expects no further rate cut in OPR this year, BNM says its has ample room to adjust the OPR

by NUR HANANI AZMAN / pic by HUSSEIN SHAHARUDDIN

THE lower borrowing cost and additional money in the pockets of Malaysians, following the 25 basis points (bps) cut in the Overnight Policy Rate (OPR) by Bank Negara Malaysia (BNM) in January, are expected to spur private consumption and consumer spending.

Economists told The Malaysian Reserve that the reduced fuel prices, as well as a lower inflation rate, would also further add liquidity into the market and boost expenditure — as envisioned by the OPR cut that is also aimed at increasing private investment, despite external economic challenges.

MIDF Research economist Muhammad Zafri Zulkeffeli said low inflationary pressure attributable to lower retail fuel prices, toll rate deduction and stable labour market are predicted to support consumer spending to grow firmly this year.

“These two expenditure components are pertinent to drive the economy this year amid a bleak external outlook. At this juncture, we expect no further rate cut in OPR this year,” he told The Malaysian Reserve (TMR) last week.

BNM made its first OPR cut this year in January, lowering the rate by 25bps to 2.75%, its lowest point since March 2011. Prior to that, it was lowered to 3% from 3.25% in May last year.

According to BNM, the adjustment to the OPR is a preemptive measure to secure the improving growth trajectory amid price stability. At this current level of the OPR, the Monetary Policy Committee considered the stance of monetary policy to be appropriate in sustaining economic growth with price stability.

Last Wednesday, BNM governor Datuk Nor Shamsiah Mohd Yunus said the central bank has ample room to adjust the OPR to accommodate the challenges in the economy following the slowdown of the economic growth to 3.6% in the fourth quarter of 2019.

Sunway University Business School economics Professor Dr Yeah Kim Leng said for individuals and businesses that have bank loans with variable interest rates, the OPR cut will translate into lower interest servicing payments.

“This means that the borrowers will have more money to save or spend on other things. For new borrowers, the cost of debt servicing will be lower with the interest-rate cut. It means it is now cheaper for individuals and businesses to borrow from the bank for consumption or investment purposes.

“On the flip side, individual and corporate savers and depositors now receive lower interest income and this therefore reduces their disposable income,” he told TMR.

Yeah added that interest and profit income from savings deposits are reduced proportionally to the rate cut. Likewise yields of fixed income securities will be reduced correspondingly, although bond prices will rise with the decline in yields due to their inverse relationship.