You down with OPR?

 

Any ordinary Malaysian who isn’t filthy rich would have at least a loan or two in order to live their life. At the very least, a housing loan or hire purchase.

So when Bank Negara announced the increase in the overnight policy rate (OPR), it’s no wonder that everyone felt invested and passionate about how it was going to impact them.

Like it or not, our lives are all going to change by the decision, quite significantly in fact.

Since I started on loans, let’s use that as the first example. I have a housing loan and almost all of my friends have housing loans. That’s how it is if you want to own a home in Malaysia.

Personally, I don’t even know anyone in my immediate circle who has been able to buy a home with just pure cash. Any changes in the OPR will directly affect the monthly paybacks.

If the OPR increases, like it recently did, then the interest rate of the loans would increase. This would mean that the monthly instalments will increase.

At the end of the loan tenure, the amount paid back will be even higher than when the loan was first taken.

For those who are already on a tight budget each month, any increase is going to be significant enough to potentially strain their finances more each month.

Post Covid-19, more specifically from mid-2022 to today, the interest rate for my housing loan has increased several times in relation to the number of times the OPR has been adjusted.

So what I am paying each month now is around 28 percent more than the instalment I was paying at the beginning of my loan when I first bought my home. I’m sure this is the same for everyone who has loans.

For those planning to buy homes, the increase in the OPR would mean that they might not be able to afford the same home they were planning to purchase before the increase. Hence, they won’t be able to become homeowners.

This could lead to a decrease in the demand for housing, which could lead to a drop in property prices. Although this could be good for some who can then afford to purchase homes, others may have problems trying to sell.

Ripple effects on economy

Another area which could be affected by the OPR increase is the small and medium-sized businesses (SMEs) in the country. Again, for any ordinary SME without deep pockets, running a business would probably mean relying on loans to fund their operations.

With the increase in the OPR, it may be more expensive for these small businesses to borrow money. This, in turn, could lead to either a decrease in profits or worse, they could be forced to shut down.

This has ripple effects on the economy as a whole because SMEs are really the backbone of Malaysia’s economy and they are the ones that provide employment opportunities and also to the country’s GDP. So there is going to be a big effect for Malaysians.

It isn’t just big loans that are going to be affected. Ordinary Malaysians who rely on credit cards and personal loans to make ends meet might also be facing a hard time when these interest rates increase because of the OPR.

If they are already relying on credit cards and personal loans, their finances would definitely already be tight and would be even tighter now.

This has a big impact because according to Bank Negara, the household debt to GDP ratio is 81.2 percent.

This means that many Malaysians are already struggling to manage their finances. For this significant group of people, things are definitely going to be difficult and a struggle.

Although there are a lot of heavy negative impacts, it isn’t all doom and gloom. Bank Negara and the government has a responsibility to improve the economy for Malaysia and Malaysians, and the decision to increase the OPR has a justification for it.

One of the main objectives is to help strengthen the ringgit. This would make imports cheaper and help in lowering inflation.

In turn, this could potentially lead to lower prices for goods and services. For Malaysians who are struggling financially to make ends meet, this would actually reduce their burden.

Also, if the value of the ringgit improves, Malaysia could be an attractive destination for foreign investment. Hopefully, that would lead to a boost in the economy and create more job opportunities.

It is important to note that the OPR increase has disadvantages and advantages. Of course, when it has negative impacts on our daily lives, as ordinary Malaysians, we will be dissatisfied and unhappy.

But at the moment, we need to play the long game to see favourable results in the future.

With that being said, the government needs to be on the ball to follow through and make sure whatever decision is made now will yield the results we are all told to hope for.

Malaysiakini has a good KiniGuide on how OPR affects our wallets. - Mkini

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ZAN AZLEE is a writer, documentary filmmaker, journalist and academic. The Sheraton move really frustrated him but maybe after November 2022, he can start feeling better again. Visit fatbidin.com to view his work.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.