KUALA LUMPUR – In a move that was largely anticipated by the financial community, Malaysia’s central bank, Bank Negara Malaysia, has decided to keep its benchmark interest rate unchanged. This decision comes at a time when the shadow of tariffs looms large over the country’s economic stability.
On Thursday, Bank Negara Malaysia announced that it was maintaining the overnight policy rate (OPR) at 3.00%, a level that has been sustained since May 2023. A survey conducted by The Wall Street Journal among seven economists showed that six of them had predicted this hold, while only one had advocated for a rate cut. The central bank stated, “At the current OPR level, the monetary policy stance is consistent with the current assessment of inflation and growth prospects.” Despite acknowledging the downside risks to the economy, Bank Negara emphasized its vigilance in monitoring ongoing developments to guide its assessment of domestic inflation and growth.
Malaysia’s central bank stands as one of the few globally that has yet to embark on the post-pandemic easing cycle. However, with the increasing economic risks, analysts are now seeing a higher probability that it will finally ease its monetary policy this year. First – quarter growth data and trade figures already indicated signs of a slowdown even before the Trump administration announced extensive tariffs in April, some of which targeted Malaysia. Barclays economists suggested that this slowdown could have persuaded the central bank to make a pre – emptive rate cut in May. But, given the volatile nature of U.S. trade policy and the ongoing discussions between Malaysia and Washington regarding tariffs, Bank Negara appears to be seeking more time to evaluate the situation. CIMB economists predict that the growth risks posed by tariffs and the broader global uncertainty will almost certainly lead to a rate cut at Bank Negara’s July meeting, which coincides with the end of the 90 – day pause on the U.S.’s reciprocal tariffs on Malaysia and other countries.
HSBC economist Yun Liu described tariffs as a “sword of Damocles” for Malaysia, noting that they are likely to impact the country’s growth through trade and foreign direct investment (FDI) channels. On a more positive note, she added that while near – term uncertainty is making investors cautious, FDI decisions are based on long – term factors that extend beyond tariffs. Malaysia’s domestic resilience could potentially help it withstand the tariff storm, and there is a possibility that it could negotiate a deal for lower tariffs. The central bank itself stated that although rising trade tensions and increased global policy uncertainties will put pressure on the external sector, resilient domestic demand could help mitigate the impact. Additionally, favorable trade negotiation outcomes, pro – growth policies, and a boost in tourism could enhance Malaysia’s growth prospects. The government has initiated negotiations with the U.S., reaffirming its stance against retaliatory measures and expressing its openness to discussing key trade issues. Regarding inflation, Bank Negara anticipates that price growth will remain manageable in 2025, given moderate global costs and the lack of excessive domestic demand pressures. However, risks still persist from policy spillovers and external factors such as commodity prices and trade policies.
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