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Why is another rate cut important and why rate cuts need not be too hasty?

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For a 65-year old who has no income

When a 65 year old with a few hundred thousands in the bank heard of another rate cut, he sighed. He has no other income and relies on the interest from his fixed deposit for his daily living expenses. The latest fixed deposit rate for him may just be 2% and for a RM500,000 he will earn just RM10,000 or RM800 plus per month… It used to be 50% higher or more.

Someone struggling to pay his home loan

When someone with a home loan he was struggling to pay every month, another rate cut is much welcomed. This will help him save probably up to a few hundred ringgit every month and this is a breather. Of course, if he had bought something more affordable earlier, he may not be facing such a high pressure every month.

Looking for another rate cut?

Question. Are you waiting for another rate cut? As part of a monetary policy, rate cuts are aimed at making people use their money for investments versus just leaving it in the bank. It is supposed to spur business expansions since it is now cheaper to borrow. It may also encourage more people to buy properties since the monthly mortgage is now lowest in a decade… What do the experts say then?

Article in themalaysianreserve.com RHB Bank Bhd Group MD Datuk Khairussaleh Ramli sees no further cut in the OPR this year following the reopening of various sectors in the country.

Malayan Banking Bhd (Maybank) group president and CEO Datuk Abdul Farid Alias has the same views as that of Datuk Khairussaleh Ramli.

CIMB Group Holdings Bhd CEO Datuk Abdul Rahman Ahmad who was appointed group CEO in May said there is a possibility for another OPR cut this year.

AMMB Holdings Bhd (AmBank) last Thursday anticipates BNM to cut the OPR to 1.5% or 1.25% to support the economy battered by the Covid-19.

Do read the article in full with lots of actual comments from the leaders of these banks. Article in themalaysianreserve.com

Current rates are good enough

I do think we should only cut rates further if we continue to see a deterioration in the economy month after month. For example, if July worse than June and is August worse than July and September is anticipated to be the worse in Q3 2020? Also, do we know if the rate cuts thus far has actually spurred new investments which we wanted so that it could propel the economy or just the stock market alone?

Flexibility and using it sparingly

In many countries, rates are already at close to zero and any further cuts meant a negative rate. I guess we should have the flexibility to cut rates when we needed to; spare the bullet until it is truly necessary. 1.75%, if we take 0.25% per cut, we only have 7 bullets left before we arrive at zero. Of course, if the economy starts to be on track again, then BNM may also rein in the speculative activities by increasing the rates too.

The next BNM Monetary Policy Committee meeting is on 10th September. We shall see.

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Next suggested article: When bank refuses to lend to you or lends you lesser than you wanted, what does it mean?

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