Bank Negara cuts key interest rate to 2.5%
This is taken from today’s The Star. The Overnight Policy Rate (POR) was reduced from the previous rate which was 3.25% to 2.5%. Apart from that, the SRR (Statutory Reserve Requirement) was also reduced from 3.5% to 2% currently.
What this effectively means is that the cost of borrowing will be lower and this will hopefully benefit the economy as a whole. These rates were reduced some months ago and in the days that follow suit, the various banks lowered their Base Lending Rate (BLR) accordingly.
This was a good move indeed especially to the loan borrowers who have their loans tied to BLR rates. This would essentially mean that the borrowers will be able to repay more of their principal assuming the monthly instalments remain the same. For some, they can also write in to their respective banks to appeal for a lower interest charged (apart from the automatic reduction) since the BLR has come down. I have done this before and, although it was just 50bps reduction, in the long term, this is actually quite a bit of money taking into account the power of compounding interest.
I am not sure though if the interest charged on the deposits will be cut though. If it does, then we will have to find an alternative to our fixed deposits and savings account, seeing that whatever interest given will be significantly lower than the inflation rate we are facing (actually, the current rate is already lower) and this will mean that our money will be getting smaller and smaller.
Sigh, this global crisis is really taking a toll on us, we really have to exercise caution over our spending and saving habits and hopefully get through this with little harm done to our finances.
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April 7th, 2009
Surely an riveting read and hugely prized insight.