Bank Negara raised the OPR by 0.25%. How does it affect your hutang?

Hey hey, people. If terms like “Overnight Policy Rate” and “interest rates” put you to sleep, you’ve come to the right place. If not, you’re already here; you might as well stay, cuz Bank Negara’s recent change in the Overnight Policy Rate (OPR) WILL affect you.

“What does that mean, tho? How’s that gonna affect me?” Those are perfectly valid questions, and luckily for you, random citizen, this writer had taken the time to read up on Bank Negara’s press release on the subject matter, so he’s in the perfect position to mansplain the entire thing to you in less than 5 minutes. Aight, start your stopwatches… now.

What the heck is an Overnight Policy Rate?

You see, banks have to have a certain level of cash in their reserves, and when mommy and daddy love each other very much their cash reserves drop to an unacceptable degree, they have to borrow money from another bank to maintain the status quo. In time, the borrowing bank will have to repay the money to the lending bank, hence the interest rate. That interest rate is called the Overnight Policy Rate (OPR) set by Bank Negara, and they change it from time to time.

That… sounds like it’s got nothing to do with us average citizens at all. Except it absolutely does, because…

The OPR influences a lot of other loan interests as well

Generally speaking, when the economy is bad, one of the ways Bank Negara can help it recover is by lowering the OPR. A lower OPR means:

• Loans become cheaper
• People have more money to spend on other things
• The economy gets a boost from people spending more

Sadly, the OPR can’t stay low for extended periods of time, cuz prices of groceries, electronics, or literally anything else can spiral out of control. The more people buy chicken, for example, the less chicken there will be. And when the demand for chicken doesn’t drop, chicken sellers can increase chicken prices since people will buy it anyway.

In such a situation, people will probably ask their bosses to naik gaji – things are getting expensive, after all. This causes businesses to naik kos, and to make up for that, they increase their prices. This vicious cycle can go on and on, causing extreme inflation which is a no-no for the economy.

To prevent this, Bank Negara can raise the OPR to encourage people to borrow less and save more, since new loans will most likely come with higher interest rates – ergo, they become more expensive. People will have less money to spend, and prices of stuff won’t increase too much, too quickly. For those who have existing loans:

• People with fixed-rate loans won’t be affected
• People with floating-rate/variable loans will have to pay more every month

Also, Bank Negara can change the OPR multiple times a year; in fact, it’s been raised three times in 2022 alone, and the latest OPR is set at 2.5%. So…

Here’s what you can do when Bank Negara raises the OPR

There’s nothing you can do about the changes in the OPR, but you can choose how you wanna respond to the changes.  Bearing in mind what we talked about earlier:

• Economy bad – Bank Negara lowers OPR, new loans cheaper, people spend more, economy boost
• Economy good – Bank Negara raises OPR, new loans more expensive, people save more, control inflation

Y’all know what to do lah.

Aaaaaaaaand time. Con-lan-7-firm you finished the article in under 5 minutes, and you owe us a teh tarik. You’re welcome.