This Thursday, Bank Negara Malaysia (BNM) will announce its policy rate decision. While most analysts expect no change, Octa Broker suggests that a rate cut is on the table and is highly likely to take place later this year due to subdued inflation, stronger ringgit, and a higher likelihood for Fed rate cuts.
On Thursday, 8 May, Bank Negara Malaysia (BNM), the nation’s central bank, will reveal its policy rate decision. Like most other central banks around the world, BNM strives to maintain a balance between low inflation and sustainable economic growth.
Its key monetary policy instrument is the Overnight Policy Rate (OPR). By adjusting the OPR, BNM influences interest rates throughout the Malaysian economy, impacting borrowing costs for businesses and consumers and ultimately influencing economic activity and inflation.
BNM has kept its OPR stable since May 2023, when it surprisingly raised it to 3.00% in response to persistently high inflation amid solid household spending and tight labour market conditions. Since then, the economy has not really slowed much, so BNM has kept its base rate unchanged for almost two years now.
This stance distinguishes it from its regional counterparts – Bank Indonesia, the Bank of Thailand, the Philippine central bank, and the Bank of Korea – all of which have lowered interest rates to stimulate economic growth.
In fact, the latest official figures showed that Malaysia’s economy showed surprising strength in Q4 2024. Gross domestic product (GDP) outperformed both official estimates and market expectations, growing by 5% year-on-year in Q4 2024.
According to BNM, the GDP growth was driven by robust domestic demand, strong investment, and recovering exports. Meanwhile, national inflation has continued to decelerate, with Consumer Price Index (CPI) hitting a three-year low of just 1.4% in March 2025.
Indeed, even with reduced government subsidies for diesel, electricity, and chicken, overall inflation has been successfully managed, potentially allowing the BNM to cut its base rate later this year. However, an overwhelming majority of economists polled by Reuters see no policy change this year, suggesting the central bank will wait and see how external and domestic factors unfold.
“The Malaysian economy is doing rather well, but major risks lie ahead, particularly stemming from its high degree of openness. With global trade tensions rising, Malaysia interconnectedness and integration into the global supply chain could exert a negative impact on GDP”, says Kar Yong Ang, a financial market analyst at Octa Broker.
-NIAGATIMES
