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Rejoice or Despair? Rates are cut to lowest in 10 years. (almost)

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I should be happy with another rate cut from our Bank Negara Malaysia (BNM). Another cut of 25 basis points or 0.25%. Home owners should be happy. 25 basis point for a RM500,000 loan is a reduction (savings) of RM67 for that home owner. The higher the loan, the higher the savings. The lower the loan, the savings will be lower than RM67. That’s still RM804 per year and we have hundreds of thousands of home owners who would be smiling now. Images show the difference.

A RM500k loan with 4% interest.
A RM500,000 loan with a reduced rate. Now at 3.75%

Before everyone starts to think BNM is over-reacting, here’s what Federal Reserve of the US have done. They have just cut their rates by 50 basis points. The reason is the same. It is to cut the effects from the COVID-19. (They still called it coronavirus in the report in cnbc.com) Please click to read.

Article in thesundaily.my BNM issued a statement after the Monetary Policy Committee (MPC) meeting today. It has dediced to cut the Overnight Policy Rate (OPR) by another 25 basis points to 2.5% as the Covid-19 has hit our economy. “The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.75% and 2.25%, respectively.”

BNM said, “Although domestic growth is expected to gradually improve in the second half of the year, there are key downside risks, mainly stemming from the evolving nature and prolonged impact of the COVID-19 outbreak, and continued weakness in commodity-related sectors.” The cut is to provide an accommodative monetary environment to support the projected improvement in economic growth and price stability. Please refer to the full Article in thesundaily.my

I have written about this earlier: Maybe even lower home loan and FD rates this year It has happened way earlier than I thought. Then again every other country hitby COVID-19 is doing something, our BNM could not just do nothing. Now, we talk about those who will be affected by this cut of 25 basis points. If we have a RM500,000 fixed deposit savings in the bank and it’s due to be renewed next week, then we would have ‘lost’ RM,1250 per year. Every month, we have just ‘lost’ over RM100. For some retirees, this meant they have to reduce their spending by RM3.50 every day moving forward.

Granted, it’s not a lot but as some Chinese would say, “You think RM100 is not money ah?” As they say, we could not have the best of both worlds. One important point that we need to understand that if we do not start to support the economy earlier, then later may just be too late. Yes, I agree with this pre-emptive cut in view of the current effects from COVID-19. Take appropriate actions yeah.

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