If Bank Negara opts to cut the OPR by 25 bps to 2.75%, BIMB Research projects the gross domestic product to edge up from 4.4% to 4.6%.
PETALING JAYA: A 25 basis point (bps) cut in Malaysia’s overnight policy rate (OPR), which is widely anticipated, will provide a modest but meaningful lift to mitigate weaker-than-expected growth following the implementation of new tariff measures, says BIMB Research.
The United States has raised Malaysia’s tariff rate to 25%, up from the earlier 24% announced under the “Liberation Day” tariff schedule on April 2.
So far, Bank Negara has kept the OPR unchanged at 3%, emphasising that the current monetary settings remain “appropriate and supportive of the economy”.
The central bank has acknowledged that while inflation may rise this year, this would be largely cost-push and temporary, driven by policy-related price adjustments rather than demand-side pressures.
BIMB Research said this stance reflects the central bank’s intent to shield household purchasing power during a transition year, where reforms may initially tighten household budgets, especially among lower-to middle-income groups.
If Bank Negara opts to cut the OPR by 25 bps to 2.75%, the research house projects the gross domestic product (GDP) to edge up from 4.4% to 4.6%, driven by stronger domestic demand and improved investment sentiment.
“The reduction in borrowing costs is expected to encourage private sector investment and boost household consumption, helping to offset the drag from external headwinds such as tariffs and supporting broader economic momentum,” BIMB Research said in a report weighing in a potential 25 bps interest rate cut.
Bank Negara’s Monetary Policy Committee meets today to decide on the OPR.
According to BIMB Research, a rate cut is also likely to reinforce business confidence and accelerate capital spending.
This monetary easing will work alongside other supportive policies such as infrastructure projects and industrial upgrading under the New Industrial Master Plan 2030.
“As a result, Malaysia’s growth trajectory is expected to strengthen modestly.
“Private consumption growth is expected to increase by 0.2 percentage point to 5.5%, reflecting stronger consumer spending in response to the rate cut.
“The lower OPR reduces household financing costs, easing debt service obligations and providing greater room for discretionary spending.”
As for inflation, it sees limited downside risk given that current inflationary pressures are supply-driven and policy-induced.
“The increase in prices from fuel and taxes is largely inelastic to interest rates, and core inflation remains contained. As such, a small easing could be undertaken without risking macroeconomic instability.
“With a 25 bps rate cut scenario, both headline and core inflation are expected to rise slightly – an increase of 0.1 percentage point compared to the baseline, mainly due to mild demand-driven price pressures,” it added.
Meanwhile, the US Federal Reserve is expected to start cutting interest rates in the second half of 2025. This could weaken the US dollar and provide short-term support for emerging market currencies like the ringgit.
However, if Bank Negara also cuts its rate at the same time, it may limit the ringgit’s gains, especially if Malaysia’s domestic macro fundamentals remain weak.
Coming to sectors, a 25 bps OPR cut will impact banks’ net interest margin to varying degrees, depending on their funding mix and asset-liability structure.
Banks with lower current account and savings account ratios and greater reliance on fixed-rate deposits stand to benefit as their cost of funds adjusts more slowly. This will give them more flexibility to reprice lending products and protect margins, said BIMB Research .
“Consumer discretionary, property developers targeting affordable housing, export-oriented technology companies, and select real estate investment trusts appear well-positioned to capture upside, whereas defensive sectors like healthcare, utilities and glove manufacturers would see only modest tailwinds.”
Overall, BIMB said a tactical equity stance favouring rate-sensitive, high-leverage and export-driven plays can harness the stimulative impact of pre-emptive easing and reinforce Malaysia’s economic resilience.
Nevertheless, the research house maintains its FBM KLCI target of 1,638 points for 2025.
