BLR Increased by 0.3%

I shared with you in previous post here that BLR (Base Lending Rate) is expected to be increased right? Well, it already has actually..from 6.3% to 6.6%, an increase of 0.3% that is..

Have you ever wonder why banks increase the BLR and BFR (Base Financing Rates)? I did..and as usual my other half explained it to me..let me share with you what I figured out..

To start with, rise in BLR and BFR is in response to increase in Overnight Policy Rate (OPR) by Bank Negara Malaysia (BNM). Increase in OPR is normally on 25 basis points, and this time it increase from 2.75 to 3.00 on last 5 May 2011.

Why BNM increase the OPR? BNM cannot simply raise the OPR just like that, without taking into consideration few factors. Among other reasons is ue to forecast of better economy growth despite Tsunami in Japan and continued economic slowdown in US and Europe.

So, what is the consequence of increase in OPR? Obviously, the increase in OPR contributes to increase in inflation rate. Inflation is already expected to increase further due to higher food prices & fuel cost. You guys are aware right that sugar price increased just recently, not to mention the fuel price increased few times already for this year alone..According to most analysts, there might be another round of OPR increase expected in the second half of the year.


As a result, banks start to increase the BLR & BFR a week after. The increase is 0.05% higher than the OPR which would be positive to the Banks earnings.

How does the increase in BLR have any impact on us? How much? Let’s do some calculation..:D

Sample on the impact

Let me take the same example as before..say your housing loan is RM 400,000..

1. Current Interest rate : BLR – 2.3 = 6.3 – 2.3 = 4.0%

2. New Interest rate : BLR – 2.3 = 6.6 – 2.3 = 4.3%

From the table above, you can see an increase around RM 70 per month which would result in RM 840 per year & RM 25,200 for 30 years.

Perhaps we can say that the impact would be minimal?