Interest Rate Hike in Malaysia: Who Wins and Who Loses?

As the global economy continues to reel from the impact of the COVID-19 pandemic, Malaysia's central bank recently announced a surprise interest rate hike. This move, aimed at curbing inflation and stabilizing the currency, has left many wondering who will benefit and who will suffer as a result.

The interest rate hike will undoubtedly have far-reaching implications across various sectors of the Malaysian economy, affecting individuals, businesses, and investors alike.

While some may view this decision as a positive sign of economic recovery, others may worry about the potential negative repercussions. As such, it's important to take a closer look at the potential winners and losers in light of this recent development.

This blog post will examine the impact of the interest rate hike in Malaysia and the effects on different industries, such as banking, real estate, and consumer goods, and the impact on the average Malaysian citizen.

Bank Negara Malaysia's interest rate hike has winners and losers, and they can be summarized as follows:

Winners

1. Savers
   With the interest rate hike, savers can earn higher returns on their savings accounts and fixed deposits. (If you still have plenty of surplus money sitting in the bank 😛)
   
   For example, with an interest rate increase of 0.25%, a person who has RM10,000 in their savings account can earn an additional RM25 in interest income annually.
   
   
2. Lenders / Banks
   
   Higher interest rates can boost banks' profits by increasing the net interest margin, which is the difference between the interest they charge on loans and the interest they pay on deposits.
   
   For example, a bank that lends RM100,000 at an interest rate of 4% would earn RM4,000 in interest income annually. With an interest rate hike of 0.25%, the bank would earn an additional RM250 per year.
   
   
3. Foreign Investors
   
   With higher interest rates, Malaysia becomes a more attractive destination for foreign investors seeking higher returns on their investments. This can lead to an inflow of foreign capital, which can boost the country's economic growth.
   
   And, this is one of the reasons why higher interest rate could boost the local currency MYR, because of the inflow of foreign funds. (Or, at least, these funds have a solid reason to remain invested in Malaysia for a longer period 😁)

Losers

1. Borrowers
   
   With higher interest rates, borrowers who have taken out loans may have to pay more in interest charges. (Pity to those who buy properties in bulk previously 👀💢)
   
   For example, a person with a RM500,000 home loan at an interest rate of 3.5% per annum would have to pay RM1,458 in monthly installments. With an interest rate hike of 0.25%, the monthly installment would increase by RM85 to RM1,543.
   
   
2. Businesses
   
   Businesses that rely heavily on borrowing to finance their operations may be negatively impacted by higher interest rates.
   
   For example, a company that takes out a RM10 million loan to expand its operations may have to pay an additional RM25,000 per year in interest charges with a 0.25% interest rate hike.
   
   
3. Stock Market
   
   Higher interest rates may lead to a decrease in consumer spending, which can impact the performance of companies in the stock market. 💔
   
   For example, if consumers are paying more in interest charges on their loans, they may have lesser money to spend on goods and services, leading to a decrease in company profits, thus, affecting their share prices.

~ The End ~

You may also love this article:

Higher interest rate doesn't bode well for local REITs, except this one...

https://financemalaysia.blogspot.com/2022/07/higher-interest-rate-doesnt-bode-well.html

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