On July 6, the National Bank announced another 25 basis points rate hike, which means that the overnight policy rate (OPR) was raised to 2.25% from the previous 2.00%. This is the second rate hike by the National Bank within this year, and further increases in September and November are not ruled out.
The Bank’s rate hike is in line with expectations, as it will further devalue the Malaysian currency if it does not raise interest rates at a time when the Federal Reserve and many central banks around the world are accelerating their pace. The devaluation of the Malaysian dollar will push up domestic inflation.
The biggest impact of the interest rate hike by Bank Negara is that people will have to pay more for 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 areas will be affected.
1. The movement of the Malaysian currency
The Federal Reserve has raised interest rates by 150 basis points in six months, which has led to an accelerated flow of dollars back to the US and a record high level of the dollar index. Emerging markets, on the other hand, are experiencing a shortage of dollars, with emerging market currencies tumbling and the RM exchange rate hitting a level of 4.42. The announcement of an interest rate increase by the National Bank is expected to drive the Malaysian dollar stronger or at least not continue to depreciate.
2. Foreign capital direction
The Fed’s interest rate hike has led to an accelerated return of foreign capital from emerging markets to the U.S. China has also started to see a withdrawal of foreign capital, and the Bank Negara’s interest rate hike may slow down the withdrawal.
3. Mortgage and car loan interest rate increase
The interest rate you need to pay for your mortgage when you buy a house will increase, and the banks in China will also start to adjust the benchmark rate (BR) for mortgage loans, and the interest rate you need to pay for your mortgage has increased. If your car loan is a variable rate, the interest rate increase by the national banks will also result in you having to pay more on your loan each month.
4. Reduced market liquidity can ease inflation
The increase in the interest rate of fixed deposits in banks makes the general public more willing to keep their money in banks, so there will be less money flowing in the market, which can also effectively curb the inflation in the country.
5. Increase in interest on time deposits
For those who prefer to keep their money in Fixed Deposit, the increase in interest rate of the national bank is good for you because the interest rate you can get on fixed deposit will increase.
6. REIT, real estate financing pressure increased
If you are a REIT or real estate investor, the pressure to raise funds for REITs and real estate will increase, which will lead to fluctuations in the share price of REITs, and the pressure to repay loans for real estate investors will also increase.
