BNM has maintained OPR. Bank of England too! Same reason?

BNM has maintained OPR. Bank of England too! Same reason?

Property market will always be the first to be impacted when interest rates change

As soon as the rates are changed higher or lower, banks will have to inform their customers of the change and then inform of the new amount to be paid. This is usually very quickly. When the central bank lowers the interest, they hope businesses will borrow and expand. This decision to borrow and expand will take time. Meanwhile for the people who has Fixed Deposit, the rate cannot be changed and it can only change in the next renewal whether higher or lower.

This is why property market will be the first to be impacted from the change in interest rate. In fact, someone deciding whether to buy or not to buy may be alarmed by a higher rate and may choose to delay the purchase too. So, this is why when rates change, the first market to be affected would be the property market.

How’s the property market in London currently?

Briefly. It is still rising albeit slower. “London is expected to see slower than average house price growth over the next five years, new data from Savills has revealed. 

Whereas the average UK property is expected to see a 22 per cent rise in value by 2030, homes in London will see a more modest boost of just 13.6 per cent..” Source: standard.co.uk

In this case, maybe the property market is not the main reason for Bank of England in deciding whether or not they like to keep the rates.

Why did Bank of England maintain the interest rates?

This is what it said:

“Interest rates were held at 4% in a tight vote as the Bank of England said it judged inflation in the UK to have peaked.

Policymakers voted 5-4 in favour of leaving rates unchanged on Thursday but said borrowing costs were “likely to continue on a gradual downward path”.

Bank governor Andrew Bailey said rather than cutting interest rates now, he would “prefer to wait and see” if price rises continued to ease this year.

The Bank’s decision comes ahead of the government’s Budget on 26 November, where speculation has grown that Chancellor Rachel Reeves will raise taxes.” Source: bbc.com

Inflation vs Interest rate, how to explain this?

Inflation is usually due to demand increasing faster than supply and when more people wants to buy and there are not enough of the good, then prices will rise so that the ones who are willing to pay higher will get it first. Thus, inflation is usually a positive and a negative sign at the same time. When inflation happens, the central bank would want to keep it steady and stable. Rising is fine, just do not rise like a 100 meter sprint.

So, the central bank would increase the interest rates so that more money will flow back into the bank and when there are less money in the market, the demand would fall and thus, any potential speculative type of buying / expanding will slow down too.

If the market is however slowing down and everyone is unwilling to invest / buy, then the central bank could lower the rates because when rates are lower, repayment is also lower. This may create demand for goods and services and possibly property as well. This is how the central bank ensure there’s stability in the market.

Maintaining the interest rate is for a different reason

While the Q3 GDP growth of Malaysia is expected to be resilient and the macro-economic fundamentals seem to be improving, it is not the same for England. It’s slowing. The below was a report in cnbc.com just 3 weeks ago.

“UK economy sleepwalking after yet another lackluster growth update.” Article in cnbc.com

Thus, keeping the rates the same is more of a holding steady to see what happens next prior to deciding if a change is necessary maybe in their next decision meeting.

Happy understanding.

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