Interest Rate Cut: How Does It Impact You?

The Central Bank of Malaysia cut its interest rates by 75 basis point from 3.25% to 2.5%. The latest move is higher than the consensus expectation of 50 basis point. The higher than expected rate cut probably reflects a faster than expected deterioration in the country's economy.

In the same token, the Central Bank has also reduced the Statutory Reserve Requirement (SRR) of banks by 150 basis points, from 3.5% to 2%. This potentially neutralizes the expected margin squeeze on banks (due to lower rates) by reducing banks' cost of funds, expanding liquidity in the banking sector and thus increases the capability of banks to restructure loan defaults and helps reduce risk of non-performing loans.

With the latest low interest rates, it's a blessing to loan borrowers but a bane to depositors. For loan borrowers, it is a good time to refinance their existing loans. A low interest rate environment will most likely bring some relief to the property market too.

On the other hand, the lower interest rate should benefit bond yield.

With the slowing economy (and possibility of recession) and volatile investment climate, it is indeed imposing greater challenges to sustaining real wealth creation in the foreseeable future.