Bank Negara announced a 25 basis point rate hike on 11 May, which means that the overnight policy rate (OPR) was raised to 2.00% from the previous 1.75%.
Originally, economists were predicting that Bank Negara would not raise rates too soon, but with the Federal Reserve and several central banks around the world accelerating their rate hikes, our national bank could not hold out and finally chose to raise rates early.
The most worthwhile effect of the Bank Negara rate hike is that people will have to pay more on their monthly loans. Those who have time deposits will enjoy a higher rate of return.
With the announcement of the interest rate hike by the National Bank, these sectors will be affected.
1. The movement of the Malaysian currency
The Federal Reserve has raised interest rates by 75 basis points in less than six months, which has led to an accelerated flow of dollars back to the US and a shortage of dollars in emerging markets, with emerging market currencies tumbling and the RM exchange rate hitting new lows frequently within a month. The announcement of an interest rate rise by the National Bank will hopefully lead to a stronger or at least not further depreciation of the Malaysian currency.
2. Where foreign capital is heading
The Fed’s interest rate hike has led to an accelerated return of foreign capital from emerging markets to the US, and the country is beginning to see a withdrawal of foreign capital, which may be slowed by the Bank Negara’s interest rate hike.
3. Higher interest rates on home and car loans
The interest rate you have to pay on your mortgage when you buy a house will increase and the banks in the country will also start to adjust their benchmark rate (BR) for mortgage loans and the interest rate you have to pay on your mortgage has increased. If your car loan is on a variable rate, the increase in interest rates by the national banks will also result in you having to pay more on your loan each month.
4. Less liquidity in the market
The increase in interest rates on fixed deposits in banks will make the general public more willing to keep their money in banks and therefore less money will flow in the market, which will also effectively curb inflation in the country.
5. Increase in interest rates on time deposits
For those who prefer to keep their money in Fixed Deposit, the increase in interest rates by the National Bank will be beneficial to you as you will receive an increased interest rate on your fixed deposits.
6. Increased pressure on REITs and real estate financing
If you are a REIT or real estate investor, there will be increased pressure on REIT and real estate financing, which will lead to fluctuations in the share price of REITs and increased pressure on real estate investors to repay their loans.
