“Bank Negara Malaysia keeps key interest rate at 3%, with economists expecting no rate change through 2025 due to stable growth and inflation.“
Kuala Lumpur, 07th Nov 2024, 2.21pm – Bank Negara Malaysia (BNM) has decided to maintain its overnight policy rate (OPR) at 3% following the Monetary Policy Committee’s (MPC) final meeting of the year, marking 18 months of consistent rates. Economists forecast that the central bank will keep the benchmark rate unchanged through 2025.
According to a poll by The Edge, all five economists surveyed expect BNM to hold the OPR steady for at least another 12 months. This decision aligns with the economists’ consensus from Bloomberg, marking the ninth consecutive meeting in which BNM has kept the rate unchanged since a 25-basis-point increase in May 2022.
Unlike other countries in the region that have recently cut interest rates, Malaysia’s steady approach reflects the underlying strength of its economy, noted Capital Economics, a London-based research firm. Malaysia’s GDP grew 5.3% year-on-year in Q3, marking a third consecutive quarter of robust growth. Capital Economics anticipates 5% economic growth in 2025, which could reduce the need for further support from BNM.
Australia and New Zealand Banking Group (ANZ) similarly sees no case for a rate cut from BNM in 2025, citing Malaysia’s stable inflation and growth outlook. “Current monetary policy settings are supportive of growth,” ANZ added.
Inflation Risks May Prompt Rate Hike
OCBC Global Markets Research, however, highlighted potential inflationary pressures in 2025, particularly due to the planned RON95 fuel subsidy rationalization, expected in the second half of the year. While their baseline forecast aligns with a steady OPR at 3%, OCBC noted that a rate hike could be necessary if inflation accelerates.
“If subsidy rationalization proceeds as outlined in Budget 2025, retail fuel prices could increase by 20-25% from July 2025, pushing inflation to an estimated 2.6-2.8% y-o-y in 2025,” OCBC stated, though it emphasized uncertainty in the implementation mechanism, as subsidy reductions will be targeted to specific consumer groups.
RHB Investment Bank, with an inflation forecast of 2.7% in 2025, suggests that inflation may remain contained if subsidy adjustments only affect 15% of the income group, leaving the majority of the population less impacted by higher living costs.
BNM’s next MPC meeting is scheduled for Jan 22, 2025, where the central bank will continue to assess the economic outlook and potential policy adjustments in response to domestic and global conditions.
