Bank Negara Malaysia raises OPR for a fourth time this year – up 0.25% to 2.75%; expect costlier car loans

For the fourth time this year, the monetary policy committee (MPC) of Bank Negara Malaysia (BNM) has decided to increase the overnight policy rate (OPR), which impacts the interest rates on loans.

As per BNM’s statement issued on November 3, 2022, the OPR has gone up by another 25 basis points (0.25%) to 2.75%. This mirrors previous OPR increases announced on September 8, July 6 as well as May 11.

BNM said despite the support from positive labour market conditions and the full reopening of most economies and international borders, global economy is still be weighed down by rising cost pressures, tighter global financial conditions and strict containment measures in China.

“Inflationary pressures were more persistent than expected due to strong demand, tight labour markets, and elevated commodity prices, despite improvements in global supply chain conditions. Consequently, many central banks are expected to continue raising interest rates to manage inflationary pressures,” it said in its statement

“Going forward, the global growth outlook will continue to face headwinds from tighter financial conditions amid elevated inflation in major economies and the domestic challenges in China. The growth outlook remains subject to downside risks, including escalation of geopolitical tensions, worsening of domestic headwinds in China and potential energy rationing in Europe,” it added.

The central bank also noted that Malaysia’s economic activity has strengthened further in the third quarter of this year, with robust domestic demand being the main driver of growth. In line with earlier assessments, it said headline inflation is likely to have peaked during the recent quarter, with underlying inflation – as measured by core inflation – projected to average closer to the upper end of the 2.0-3.0% forecast range in 2022, having averaged 2.7% year-to-date.

The higher the OPR is set, the more expensive it is to borrow money, which will most likely result in increased rates for hire purchase loans, which is the most common form of financing taken up by car buyers. This will make loans more expensive, and banks may be more cautious when it comes to approving them.

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