The Overnight Policy Rate: how Bank Negara Malaysia sets and steers it

What is the Overnight Policy Rate?

Under the Central Bank of Malaysia Act 2009, one of BNM's principal objects is to promote monetary stability conducive to the sustainable growth of the Malaysian economy. Its primary monetary policy objective is price stability, with due regard to developments in the economy. BNM pursues this by adjusting the OPR.

The OPR replaced BNM's 3-month intervention rate as the indicator of monetary policy on 26 April 2004, when the New Interest Rate Framework was introduced. It has two roles: it signals the policy stance, and it is the target rate for BNM's day-to-day liquidity operations. Apart from the overnight rate, BNM does not directly set other short-term or long-term interest rates or bond yields; financial markets determine those.

Who sets the OPR?

The Monetary Policy Committee is responsible under the Central Bank of Malaysia Act 2009 for formulating monetary policy and the policies for monetary operations. It comprises the Governor, the Deputy Governors and between three and seven other members, including external members appointed by the Minister of Finance on the recommendation of BNM's Board Governance Committee.

The MPC decides on the OPR by assessing the balance of risks to domestic growth and inflation, and it also monitors risks of destabilising financial imbalances. Before each meeting, BNM's internal Monetary Policy Working Group, chaired by the Assistant Governor in charge of economics, reviews staff assessments that feed into the MPC's presentations. BNM notes that monetary policy takes time to work; by some estimates its greatest effect comes after about a year.

When does the MPC meet?

The MPC meets at least six times a year. Each decision is announced in a Monetary Policy Statement released at 3.00pm on the day of the meeting. MPC members observe a communication blackout that begins 10 calendar days before the decision and ends when the statement is published.

• 2026 meetings: 22 January, 5 March, 7 May, 9 July, 3 September and 5 November.
• 2027 meetings, as published with the 5 November 2026 statement: 21 January, 4 March, 6 May, 8 July, 9 September and 4 November.

How does BNM keep overnight rates close to the OPR?

The OPR is the target for the average overnight interbank rate (AOIR). BNM manages the level of liquidity in the banking system so that the AOIR stays around the OPR. Its monetary operations run daily through electronic auctions on FAST, in a morning session from 9.30am to 10.15am and an evening session from 4.00pm to 4.30pm, after BNM announces its liquidity forecast.

• Uncollateralised direct borrowing by tender, from overnight to six months, which is BNM's principal instrument.
• Repos to absorb liquidity and reverse repos to add it.
• Auctions of Bank Negara Monetary Notes and Bank Negara Interbank Bills.
• Outright purchases and sales of Government and BNM securities, and foreign exchange swaps.
• In the Islamic money market, Qard acceptance, the Commodity Murabahah Programme and BNMN-i. BNM implements its policy target only in the conventional market; its Islamic operations aim to keep enough liquidity for the Islamic interbank market to work efficiently.

What is the OPR corridor?

To prevent excess volatility in the AOIR, BNM operates an interest rate corridor of 25 basis points either side of the OPR, backed by overnight standing facilities for interbank institutions. BNM pays the floor rate, 25 basis points below the OPR, on overnight deposits, and charges the ceiling rate, 25 basis points above the OPR, on overnight lending.

The facilities are a last resort for surpluses or shortages late in the day. Lending is collateralised: conventional banks borrow through reverse repos, and Islamic banks through sell and buy back or Collateralised Murabahah, using eligible securities such as those issued or guaranteed by the Government or BNM.

How does the OPR affect loan and deposit rates?

BNM's Reference Rate Framework requires licensed banks, licensed Islamic banks and prescribed development financial institutions to price new floating-rate retail loans and financing against the Standardised Base Rate (SBR). The SBR equals the prevailing OPR, and the customer's rate is the SBR plus a spread. The revised framework issued on 27 March 2026 applies from 1 July 2026.

• When the OPR changes, banks must adjust the SBR by the same amount within seven working days, for both increases and decreases.
• Retail loans granted before 1 August 2022 stay on the Base Rate or base lending rate, which banks must move by the same amount as the SBR.
• Revised instalments must take effect within 60 calendar days of the adjustment from 1 July 2026, and within 30 calendar days from 2 January 2028. Customers must be told at least seven calendar days before a new instalment takes effect.
• Deposit rates are set by each bank according to its funding needs and strategy, so BNM notes they may move by more or less than the OPR.

How has the OPR changed, and where can you check it?

Since 2004 the OPR has been raised and cut many times. BNM notes that it peaked at 3.50% in April 2006 and was at its lowest, 1.75%, from July 2020 until May 2022. At its meeting on 5 November 2026 the MPC kept the OPR at 2.75%, the level it has been at since a 25 basis point cut on 9 July 2025.

The OPR can change at any MPC meeting, so always check the latest figure on BNM's OPR Decisions page, which lists every decision with its Monetary Policy Statement, or on the Monetary Stability page, which shows the current rate and the next decision date.

Monetary policy training with Ogos Learning

How central banks use the money market to carry out monetary policy is part of PKMC Module 2 (The Money Market). Ogos Learning offers self-paced e-learning for PKMC Module 2 and Module 4 (Risk Management & Basic Derivatives), and treasury and financial markets training for bank teams. Founder and principal trainer Jin Yoong Chong, CFA, is an HRD Corp accredited trainer who has run accredited CPE courses for capital market licence holders since 2010. He has served as President of the CFA Society Malaysia and authored the PKMC Module 2, 3 and 4 textbooks with AICB.