The Federal Reserve announced a 75 basis point increase in the Federal Funds Rate in the early hours of 16 June Malaysia time, with the latest rate targeted at a range of 1.5% to 1.75%. This is the first time since 1994 that the Fed has raised interest rates by 75 basis points.
The Bank of England also announced its fifth consecutive interest rate hike on 16 June, namely a 25 basis point increase to 1.25%. The Bank of England said it would be particularly alert to signs of continued rising inflationary pressures and would take strong countermeasures if necessary.
The Hong Kong Monetary Authority also announced its third interest rate hike and raised its base rate by 75 basis points to 2%. Hong Kong operates under a linked exchange rate system where the Hong Kong dollar is pegged to the US dollar and monetary policy follows the actions of the Federal Reserve.
Major economies around the world have stepped up their interest rate hikes, forcing Bank Negara Malaysia to accelerate its pace as well. The general expectation is that Bank Negara Malaysia will also raise interest rates by 25 basis points in July, when the overnight policy rate (OPR) will be at around 2.25%.
If Bank Negara announces a 25 basis point rate hike in July, it will increase the borrowing burden on borrowers.
For a RM500,000 mortgage, a 0.25% increase in interest rates will result in borrowers having to pay about RM70 more per month. For a RM700,000 mortgage, the additional payment will be about RM110 per month. This is a heavy strain on borrowers who are cash-strapped.
