KUCHING: Bank Negara Malaysia (BNM) has recently announced that it has raised the Overnight Policy Rate (OPR) by 25 basis points, raising it to 2.25 per cent as experts believe there are pros and cons to it.
‘’Overnight Policy Rate (OPR) increase is a sign of rising borrowing costs brought on by higher loan interest rates. The cost of new mortgages will be higher than it was in the past,’’ said Dr Jerome Kueh Swee Hui.
The Deputy Dean for Industry and Community Engagement from the Faculty of Economics and Business, Universiti Malaysia Sarawak (UNIMAS) stated that this will eventually have an impact on new home sales and reduce demand for new housing loans.
‘’The real estate market will be impacted because consumer buying behaviour and financial commitments are key factors in property sales. In light of the current situation, people will be deterred from investing in or buying real estate if borrowing money becomes expensive.
‘’For instance, first-time home buyers should exercise caution because the higher housing loan compared to pre- and post-OPR hike will put a strain on their finances.
Kueh also added that bborrowers will be burdened with larger monthly loan payments. The monthly loan instalment will be increased as a result, which will take effect immediately. The borrowers will be under pressure because their spending plans will be impacted and burdened by greater financial obligations.
‘’On the other hand, if the current loan instalment payment amount is maintained, the loan tenure may be extended. If so, the borrowers will be under debt pressure for a longer period of time. The burden of debt will further limit peoples’ ability to spend freely.
He also pointed out that bborrowers who want to buy a house will be forced to accept the higher cost of borrowing due to the increase in loan interest rates brought on by the OPR.
He said that if borrowers choose to extend loan terms while maintaining their instalment payment level, this suggests they are indirectly building up debts, which will ultimately put more strain on their ability to make ends meet.
‘’On the other hand, depositors or those who have surplus of fund can invest in the fixed deposits, for example, due to higher interest rate. This will eventually encourage people to save more money and serve as a preventative measure for future security,’’ he said when contacted by New Sarawak Tribune yesterday.
Elaborating further, he added that in the nutshell, the property market’s higher borrowing costs or longer instalment payment terms will make borrowers even more burdened and bound by debt obligations.
The rise in the OPR shows that people should exercise caution when it comes to their spending and financial planning, Kueh pointed out.
When the bank increases the interest, this suggests to us that the economy is recovering, said another UNIMAS lecturer Dr Harry Entabang from the Faculty of Economics and Business.
However, he pointed out that the decision to do so may be too soon, simply because the economy just opened in April and the employment rate is still in its declining phase.
‘’For me, this could be temporary, but we are still in a dire situation; we have not really recovered. Yes we will but it will take time,” he explained.
When asked about what the increase of OPR would mean to property buyers, he said at the moment Bank Negara increases the OPR and it will also increase the interest charged to the borrowers.
‘’For me, for Bank Negara to quickly increase the OPR rate, it will trigger all the banks to increase the interest rate so that they will charge the borrowers, including businesses.
‘’At the moment, it is a signal from the bank to increase the OPR, which means the financial institution will likely increase so it is a very effective policy.
Separately, Harry also stated that even now public members are going through a difficult period. Cost of food is increasing like we’ve never seen before and for those running the property market and construction market, prices of construction materials have increased between 20 and 40 per cent, he said.
‘’When businesses borrow money from the bank, the bank has already increased the OPR. Automatically, the bank will put interest to the borrower that will make the cost of living more expensive.
‘’Since the OPR increase, the period of loan will also increase, for example if they want to pay you the same amount, instead of 9 years it will be 10 years’’
Meanwhile, Harry cautioned that at the end of the day, the community will go through a difficult period of time.
“I’m not sure whether that is the right thing to do. Yes, things are recovering, people are coming back to work.
‘’What the pandemic has done still affects the business community and this has caused the people a lot of damages and for the bank to quickly increase the OPR rate just by looking at certain signs, for me that is too early,’’ he opined.
