interestrateopr

At the Monetary Policy Committee meeting today, Bank Negara Malaysia decided to leave the Overnight Policy Rate (OPR) unchanged at 2.00 percent

The deterioration in the world economy during the first quarter was worse than expected as the global financial turmoil became more prolonged. While certain segments of the international financial markets have stabilised, and further progress has been achieved in the financial sector resolution, the spillover effects have led to a severe contraction in economic activity in the advanced economies.The full effect of these global developments is being felt by the regional economies during the first half of 2009.

The domestic economy continues to be adversely affected by the significant contraction in external demand, resulting in steep declines in exports and industrial production. This has resulted in a marked contraction in the Malaysian economy in the first quarter of 2009. These conditions have continued into the second quarter. However, a more modest pace of decline in the latest indicators of global economic activity suggest the potential for a gradual improvement in the second half of the year. This stabilisation in the external environment is also supported by the accelerated implementation of fiscal measures, the further moderation in inflation and continued access to financing, thereby increasing the prospects for a resumption of growth in the Malaysian economy.

The current assessment is that the accumulated monetary policy initiatives and measures to enhance access to financing are sufficient to provide support to domestic demand. With sizeable and sufficient liquidity in the system, continued emphasis will be given to ensure an adequate flow of credit to all segments of the economy.

 

Bank Negara Malaysia
26 May 2009

 

What is OPR?

In short, a definition for OPR (a.k.a. Overnight Rate in most countries) is regarded as “the rate that large banks use to borrow and lend from one another on the interbank market”. In Malaysia, the rate is regulated by Central Bank.

And, the movement of OPR will have direct and positive influence the movement of Base ‘.Lending Rate (BLR).

Since the OPR has been reduced, then soon the financial institutions will also reduce the BLR, and the people will enjoy a lower interest rate.

On the other hand, SRR is regarded as the minimum percentage out of the total deposit received that need to maintain by financial institutions.

For example, Bank A has collected RM 1 billion from the consumer through placing of fixed deposits, saving accounts, current account and etc, and the SRR will be at RM 20 million, as reduced from RM 35 million previously.

That’s mean, from the RM 1 billion deposited by consumers in a bank, and the bank can fully utilize the RM 980 million as loan to others, and 20 million as SRR.

Both OPR and SRR affect the “money supply” in the market. Theoretically, lower OPR and SRR, then more money will be spent in the open market.