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What is SBR?

The Standardised Base Rate (SBR) is a reference rate introduced by Bank Negara Malaysia (BNM) on August 1, 2022, to enhance transparency and consistency in the pricing of retail floating-rate loans across all financial institutions in Malaysia.

Key Features of the SBR:

• Uniform Reference Rate: Unlike the previous Base Rate (BR), which varied among banks, the SBR is standardized across all financial institutions, simplifying the comparison of loan products for consumers.
• Link to Overnight Policy Rate (OPR): The SBR is directly tied to the OPR, the rate at which banks lend to each other overnight, set by BNM's Monetary Policy Committee. Any changes in the OPR will result in corresponding adjustments to the SBR.

In summary, the SBR serves as a unified and transparent benchmark for retail floating-rate loans in Malaysia, directly linked to the central bank's OPR, thereby facilitating more informed borrowing decisions.

Banks Charge More than the SBR:

Even though the SBR is 3%, banks do not lend money at that exact rate. Instead, each bank adds a "spread" to the SBR. The spread reflects the bank's operating costs, profit margin, and the risk associated with lending to borrowers. Therefore, the actual interest rate (also called the Effective Interest Rate) is calculated as:

Effective Interest Rate = SBR + Spread

Each bank's spread can vary based on their cost structure, the type of loan, and factors like your credit profile or the type of property. The Effective Interest Rate is the final rate you will pay on your loan, and it directly impacts the monthly repayments. While the SBR is fixed across banks, the spread each bank charges is different, so comparing effective interest rates from different banks helps you find the best rate for your needs.

What is OBR?

The Overnight Policy Rate (OPR) is the interest rate at which financial institutions lend to one another overnight in Malaysia. Set by Bank Negara Malaysia (BNM), the OPR serves as the central bank's main tool for influencing the country's monetary policy and managing inflation, economic growth, and the stability of the Malaysian ringgit.

Impact on The Economy:

• Higher OPR: Often implemented to cool down an overheated economy and control inflation.
• Lower OPR:Used to stimulate economic growth, particularly during economic downturns, by making loans more affordable for businesses and consumers.

Effect on Standardised Base Rate (SBR):

• As SBR is directly tied to the OPR, any OPR change leads to a corresponding change in the SBR, affecting home loan and other financing rates.

In summary, the OPR plays a crucial role in guiding Malaysia's economic performance by influencing loan affordability, spending, and investment patterns across the country.