PETALING JAYA: The base rate will replace the base lending rate (BLR) as the main reference rate for new retail floating rate loans effective Jan 2, 2015, said Bank Negara Malaysia (BNM). It said the base rate will be used for new retail floating rate loans and the refinancing of existing loans, from Jan 2, 2015 onwards. After the effective date, it said BLR-based loans prior to 2015 will continue to be referenced against the BLR. However, when a financial institution makes any adjustments to the base rate, a corresponding adjustment to the BLR will also be made. As such, BNM said financial institutions will be required to display both their base rate and BLR at all branches and websites. BNM said the shift to the new reference rate framework should have no impact on the effective lending rates charged to retail borrowers which are determined by various factors, including a financial institution's assessment of a borrower's credit standing, market funding rates and competitive considerations. It is also important to note that the changes do not represent a change in the bank's monetary policy stance. In a statement yesterday, the central bank said the new reference rate framework aims to provide a more transparent reference rate to enable better decision by consumers in making choices among the many loan products offered by financial institutions. BNM said the new reference rate will also better reflect changes in cost arising from monetary policy and market funding conditions, while encouraging greater discipline and efficiency among financial institutions in the pricing of retail financing products. Since the introduction of the BLR framework in 1983, the BLR has served as the main reference rate on retail floating rate loans in Malaysia. Since then, the determination and implementation of the BLR has evolved with the development of the financial sector. In the recent period, however, the BLR has become less relevant as a reference rate for loan pricing, as lending rates on new retail loans are being offered at substantial discounts to the BLR. The BLR also lacks transparency, which makes it difficult for consumers to make an informed decision.