Bank Negara keeps interest rates at 3%


Bank Negara said inflation is expected to remain manageable in 2025.

PETALING JAYA: For the tenth consecutive sitting, Bank Negara has kept the Overnight Policy Rate (OPR) at 3%, a level that it first touched in May 2023 in the post-lockdown era.

In the central bank’s latest media statement after its Monetary Policy Committee meeting yesterday, Bank Negara said the latest indicators are pointing towards sustained strength in economic activity driven by resilient domestic expenditure and higher export activity.

Going forward, it anticipates exports to be supported by the global tech upcycle, continued strength in non-electrical and electronic (E&E) goods, and higher tourist spending.

“Employment and wage growth, as well as policy measures, remain supportive of household spending.

“The robust expansion in investment activity would be sustained by the progress of multi-year projects in both the private and public sectors, the higher realisation of approved investments, as well as the implementation of catalytic initiatives under the national master plans,” it projected.

These investments, said the central bank, supported by higher capital imports, will raise exports and expand the productive capacity of the economy, before commenting that Budget 2025 measures will provide additional support to growth.

It added that growth outlook is subject to downside risks from lower-than-expected external demand and commodity production, while upside risks to growth mainly emanate from greater spillover from the tech upcycle, more robust tourism activity and faster implementation of investment projects.

Additionally, Bank Negara said inflation is expected to remain manageable in 2025, amid the easing global cost conditions and the absence of excessive domestic demand pressures.

“Nevertheless, the inflation outlook remains subject to the details of the implementation of announced domestic policy measures.

“Upside risk to inflation would be dependent on the extent of spillover effects of domestic policy measures, as well as global commodity prices and financial market developments,” said the central bank.

As it has emphasised on several occasions, Bank Negara is keeping the view that the current OPR holds the sweet spot of being supportive of the economy, while staying consistent with the current assessment of inflation and growth prospects.

Ideas Malaysia economist and assistant research manager Doris Liew, like several of her counterparts, believes the OPR is likely to persist throughout the remainder of 2025, barring any significant shifts in the economic landscape.

However, she recognised several factors that could influence a change in the OPR, including the US Federal Reserve’s decision to adjust interest rates to further stimulate the domestic economy, a slowdown in Malaysia’s economic growth, or a spike in domestic inflation.

Echoing Bank Negara’s sentiments, she told StarBiz that the current OPR level continues to support and accommodate economic growth effectively.

“This stability in monetary policy fosters a predictable environment, which is beneficial for both investors and businesses.

“Predictability in interest rates allows for more accurate financial planning and investment strategies, reducing uncertainty in the market.

“Additionally, a stable OPR helps in controlling inflation, ensuring that price levels remain manageable for consumers and businesses alike,” said Liew.

Asean economist at HSBC Yun Liu too believes the OPR would not budge in 2025, but advised a close watch on inflation, saying that the incoming RON95 subsidy rationalisation has wider implications.

“While the government has announced RON95 subsidy rationalisation that will keep subsidies for the majority 85% of the population in mid-2025, a lack of detail poses uncertainty on the inflation trajectory this year,” she observed.

Liu believes Malaysia is likely to see another year of robust growth, with room for the trade sector to recover, particularly considering that electronics shipments have not followed up as strongly as other tech-exposed peers.

Separately, Bank Negara said the ringgit performance will continue to be primarily driven by external factors, noting that the narrowing interest rate differentials between Malaysia and the advanced economies is positive for the local note.

“Malaysia’s favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the ringgit,” it added.

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