KUALA LUMPUR (Reuters) – Bank Negara Malaysia (BNM) maintained its overnight policy rate at 2.75%, aligning with market expectations, following its first reduction in five years during the July meeting. The decision reflects a balanced view of moderate inflation and sustained economic performance. n nThe central bank indicated that domestic demand will continue to fuel growth into 2026, supported by employment trends, rising wages, and income-focused government initiatives that bolster consumer expenditure. However, it cautioned about external vulnerabilities, including sluggish global trade, weakening market confidence, and potential shortfalls in commodity output. n nA recent Reuters survey of 28 economists showed a majority expect the benchmark rate to remain unchanged through 2024. Six analysts predict a 25-basis-point reduction to 2.50%, while one forecasts a more aggressive 50-basis-point drop to 2.25%. n nOCBC’s Lavanya Venkateswaran noted that economic expansion is likely to decelerate in the second half of the year, creating space for further easing. Yet, BNM’s latest communication suggests a shift toward a less accommodative approach, implying that only substantial negative data would prompt a policy shift. n nBarclays analysts revised their outlook, now anticipating a rate cut in early 2026 rather than late 2024, citing the central bank’s more cautious tone. n nInflation remains subdued, with headline and core rates averaging 1.4% and 1.9% respectively in the first seven months of the year, supported by stable international price conditions. The government has adjusted its full-year growth forecast to 4%–4.8%, down from an earlier 4.5%–5.5%, due to uncertainties related to trade policies. Malaysia faces a 19% U.S. tariff on certain exports, though some products are temporarily exempt pending legal review. n nThe economy expanded 4.4% year-on-year in the second quarter, matching the first quarter’s pace. Capital Economics’ Gareth Leather believes additional monetary easing may occur this year, citing tighter fiscal settings, declining commodity values, and the adverse effects of American tariffs. n n— news from Reuters
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Malaysian central bank keeps key rate steady, stance seen less dovish
Soft inflation and relatively resilient economic growth prompted Bank Negara Malaysia (BNM) to keep its overnight policy rate at 2.75%, as expected, after cutting it for the first time in five years at its previous policy review in July. n nSign up here. n nThe central bank said in a statement that heading into 2026, economic growth will continue to be driven by domestic demand, while employment, wage growth and income-related policy measures will remain supportive of household spending. n nThe outlook was subject to uncertainties, it said, flagging downside risks from slower global trade, weaker sentiment, and lower-than-expected commodity production. n nIn a recent Reuters poll, most of the 28 economists surveyed said they expect BNM to hold rates until the end of the year. Six, however, forecast a 25-basis-point cut to 2.50% while one saw a deeper 50-basis-point cut to 2.25%. n nOCBC senior ASEAN economist Lavanya Venkateswaran said she expects growth to slow sharply in the second half of the year, leaving room for another cut. n nBut the central bank ‘s Thursday statement signals a “less dovish” stance, suggesting it would take “significant downside surprises to incoming data for BNM to move the needle on the policy rate,” she said. n nBarclays analysts also took note of the tone from the central bank and said they now expect a rate cut in the first quarter of 2026 instead of their earlier forecast of November this year. n nInflation was expected to remain moderate this year amid contained global cost conditions, BNM said, adding that headline and core inflation averaged 1.4% and 1.9% respectively in the first seven months. n nThe government expects the economy to grow between 4% and 4.8% this year, lower than an initial forecast of 4.5% to 5.5% due to trade and tariff uncertainties. Malaysia has been hit with a 19% tariff on its exports to the United States, although some goods remain exempt pending a review of U.S. laws. n nIn the second quarter, the economy grew 4.4% from a year earlier, matching the pace in the first three months of the year. n nGareth Leather, senior Asia economist at Capital Economics, is among those who think there will be further easing this year, saying that tighter fiscal policy, falling commodity prices and the impact of U.S. tariffs are expected to weigh on the economy. n nReporting by Rozanna Latiff; Editing by John Mair and Edwina Gibbs