KUALA LUMPUR: BANK Negara Malaysia announced a 25 basis point hike in borrowing costs yesterday, a move bound to have an impact on some housing loan borrowers and those with personal debt financing commitments.
For the first time in three years, Bank Negara decided to raised the Overnight Policy Rate (OPR) — the key benchmark interest rate — to 3.25 per cent from 3.0 per cent at its bimonthly monetary policy committee yesterday.
A 25 basis points OPR increase would also mean the Base Lending Rate (BLR) of banks goes up by 25 basis points. This means that consumers whose loans are tied up to the BLR may expect an increase in their mortgage instalments.
The move to increase the rate, which has been in place since May 2011, has been anticipated by market watchers since the last policy meeting in May, when the central bank raised concerns about a build-up in financial imbalances which would affect the economy’s growth prospects.
OCBC Bank (Malaysia) Bhd’s head of secured lending Thoo Mee Ling explained that the hike would impact existing and new home loan borrowers whose rates are tied to the BLR.
However, those with fixed rate loans would not be affected as their rates are not tied to the BLR, she said.
The extent of the hike is expected to be minimal.
A banking source explained that if a consumer had a variable-rate mortgage with a loan amount of RM500,000, a 30-year tenure and and interest rate of BLR minus 2.35 per cent, the monthly instalment would be RM2,460 if the BLR was 6.60 per cent. With the hike of 25 basis points, the monthly instalment would be increased to RM2,533.
At its meeting yesterday, Bank Negara’s Monetary Policy Committee said the new level would support the economy.
Latest domestic indicators point to the continued strength in exports and private sector activity.
The committee expects the economy to remain on a steady growth path.
It also described inflation as relatively stable as the effects of the price adjustments for utilities and energy continued to moderate.
“Looking ahead, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors,” it noted.
It also assured that it would continue to monitor for risks of destabilising financial imbalances.
On whether yesterday’s hike would be the last for this year, market expectations were divided as some felt that more “salvo” was needed to check on the risk of financial imbalances.
Others felt that the impact of the 25 basis points hike would take time to filter into the economy.
Credit Suisse economist Michael Wan said Bank Negara would pause for now as inflation was “relatively benign”.
“The next trigger might come in 2015 with the implementation of the Goods and Services Tax,” he said.
“Our calculations show that GST will add around 1.5 percentage points to headline Consumer Price Index inflation, bringing it above four per cent year-on-year from around three per cent year-on-year currently.”
-NST
