5 Ways Bank Negara Cuts Interest Rate Could Impact You

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#1 - Mortgage

When interest rate goes down, the monthly housing loan payment will be less as the interest has adjusted to lower rate. Particular winner of lower interest rate will be properties investor and Real Estate Investment Trusts (REIT). The reason is the borrowing cost become lower.

#02 - Bond Market

Bond fund often viewed as the safest investment and will always goes opposite direction of interest rate. When interest goes up, bond price will goes down. When interest rate goes down, bond price will goes up. Generally speaking when interest goes down, it is time to invest into bond fund.

#03 - Stimulate Economy

By lowering monthly instalment on the housing loan repayment, consumer are more likely to spend rather than save. That will inject more money into the economy. The cost of borrowing also become lower, companies profit will pick up and that eventually will stimulate the public listed company stock prices go up.

#04 - Fix Deposit

Lower interest rate may not be a good news to saver who like to allocate their hard earn money into Fixed Deposit. When interest rate goes down, their Fixed Deposit interest income will be lower.

#05 - Portfolio Allocation

With the lower housing loan repayment, consumer expect to have some additional cash on hand. Make good use of those additional money for investment instead of spending it. You can also make use of the additional cash to clear off your credit card debts as credit card interest rate is very high. If you have Fixed Deposit going to due soon, consider diversify into Bond Fund instead of renewing Fixed Deposit as the new rate will not be attractive as the previous rate.

If you have longer investment period, you may consider allocate a small portion into equities. As interest rate cut actually will stimulate the economic. Companies borrowing cost become lower and consumer spending power increase. It will eventually generate more profit to business and public listed companies stock prices will appreciate.

Conclusion

As a conclusion, lower interest rate is good for borrower and not for saver. A small portfolio restructuring may generate a better return if you do it correctly. Work out with your financial planner and plan out your portfolio to maximise your return.

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