I think most people’s money in the Fixed Deposit (FD) is already earning a lower interest; below 2% in interest at this point in time. Yes, I know this is really not a good time for those who rely on just the FD and has little diversification on anything else. Some say too dangerous but just remember that earning below 2% for the next 20 years is also very dangerous to our wealth too. A sample of what to expect as per image below:
There is now news that this sub 2% FD rate may be lowered further. MCO 2.0 has started and this has definitely given even more pressure to businesses and due to this, an even lower interest may be a pre-emptive move before the economy deteriorates first. Anyway, this is the expectation since many businesses are not operating during this period. As informed in many media, there’s a chance that this 14-day MCO 2.0 is just a starting point.
Article in themalaysianreserve.com. OCBC Bank (M) Bhd’s economis Wellian Wiranto said that the MCO 2.0 will give pressure to the GDP growth for Q1 2020. He said, “Indeed, we see the risk that the economy will shrink on both a sequential and year-on-year (YoY) basis in 1Q, with growth rates of -0.6% quarter-on-quarter and -0.1% YoY respectively. For the year as a whole, the growth rate now is likely to be at 5.7% YoY in our new baseline thinking.”
He also said that Bank Negara Malaysia (BNM) may slash the Overnight Policy Rate (OPR) in the upcoming Monetary Policy Committee (MPC) meeting on Jan 20, 2021, to 1.5% as there is a “dim prospect” of large-scale fiscal help. Do refer here for the full article: Article in themalaysianreserve.com
What will happen with a lower OPR?
First thing that will happen is that the FD rate will go even lower. Of course for people who are borrowing to buy a property, then this reduction is good for them. Their current repayment will be lower. For new buyers, they will be able to enjoy a lower repayment per month or for the same repayment, they could buy a slightly more expensive home. This will be the same for businesses who borrow. This is why interest rates are lowered. Basic idea is for people to move their lower interest rate investments into some potentially higher ones.
Conclusion
I do think BNM would have a lot more data to study prior to making their decisions. As I have written earlier, a lower interest rate is also basically showing that the economy is likely to weaken and thus steps are taken in advance. We will have to wait for that final decision on 20th January which is just next week. Time to really understand more about more investments and not just have one choice. That’s also considered no choice.
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