PETALING JAYA: After months of cautious language and watchful patience, Bank Negara Malaysia’s (BNM) latest statement hints at a gradual shift in tone, one that changes from wary to quietly more hopeful.
The 10-member Monetary Policy Committee (MPC) yesterday left the overnight policy rate (OPR) unchanged at 2.75% for the second consecutive meeting, a decision that the market was already expecting.
However, the language accompanying that decision was telling.
Malaysia’s economy, the central bank said, is doing better than expected.
“Latest developments indicate better-than-expected growth in the third quarter, driven by sustained domestic demand, resilient electrical and electronics (E&E) exports, and recovery in commodity production,” according to the MPC.
That acknowledgment came three weeks after the Statistics Department’s advance estimates showed that the economy grew 5.2% in the July-September quarter.
In the second quarter, the gross domestic product (GDP) had expanded by 4.4%, similar to the growth in the first three months of 2025.
The move to retain the OPR, at a rate lower than the pre-pandemic levels, is good news for borrowers. Borrowing costs, which were reduced after the July rate cut, will remain palatable.
Another beneficiary is the ringgit, particularly in light of the US Federal Reserve’s recent move to cut its benchmark interest rate to the lowest level in three years.
The narrowing of the interest rate differential between the OPR and the federal funds rate enhances the relative appeal of Malaysian assets, encouraging capital inflows and, in turn, lending support to the ringgit.
Year-to-date, the ringgit has already strengthened by more than 6% against the US dollar. Earlier in October, Second Finance Minister Datuk Seri Amir Hamzah Azizan had said the ringgit was on track to strengthen below RM4 per US dollar within 12 months
BNM’s latest tone reflects Malaysia’s resilient growth momentum in the face of a challenging global environment.
The domestic economy continues to shoulder much of the weight.
Private consumption remains robust, supported by steady job creation, rising wages, and income-support measures.
“Looking ahead, resilient domestic demand will continue to support growth going into 2026,” the MPC said.
Exports, long a bellwether for Malaysia’s outlook, remain supportive of the economy, led by the vital E&E segment. A pick-up in commodity production has further strengthened the case for a steady hand on monetary policy.
On the investment front, BNM noted that growth will be “driven by the progress of multi-year projects in both the private and public sectors, the continued high realisation of approved investments, as well as the ongoing implementation of catalytic initiatives under national master plans and the 13th Malaysia Plan.
“Measures under Budget 2026 will also support growth,” it said.
At the same time, inflation remains a non-issue, which is a blessing in today’s global economic landscape.
Year-to-date, headline and core inflation have averaged 1.4% and 1.9%, respectively.
The central bank expects price pressures to stay contained, projecting headline inflation to remain moderate in 2026 amid the continued easing in global cost conditions.
“Global commodity prices are expected to remain modest, contributing to contained domestic cost conditions.
“Meanwhile, core inflation in 2026 is expected to remain stable and close to its long-term average, reflecting continued expansion in economic activity and the absence of excessive demand pressures.”
While it stopped short of openly mentioning about the targeted RON95 petrol subsidy mechanism, the MPC said the overall impact of the implemented domestic policy reforms on inflation in 2026 is expected to be “limited”.
The balance of stronger growth and low inflation gives BNM latitude to hold rates steady while keeping an eye on global headwinds.
The MPC described its current policy stance as “appropriate and supportive of the economy amid price stability,” signalling little urgency to move either way.
The committee also acknowledged upside potential to economic growth. This comes just days after Prime Minister Datuk Seri Anwar Ibrahim signed the Agreement on Reciprocal Trade with US president Donald Trump.
The MPC’s statement highlighted that while “downside risks to the growth outlook remain from slower global trade, weaker sentiment, as well as lower-than-expected commodity production,” the economy also stands to benefit from “a better global growth outlook, stronger demand for E&E goods, and robust tourism activity.”
Globally, the MPC said, growth remains supported by resilient labour market conditions, moderating inflation, less restrictive monetary policy and supportive fiscal policy.
It added that the conclusion of more trade negotiations has, to some extent, eased global uncertainty.
That perspective reflects the changing global mood: fears of recession have eased, inflation is moderating, and major central banks are edging closer to rate cuts.
For Bank Negara, that means it can afford to stay put and preserve stability at home while the rest of the world recalibrates.
However, OCBC senior Asean economist Lavanya Venkateswaran still thinks that there is a possibility for Bank Negara to cut its rate, although a sustained domestic growth in 2026 may reduce the need to lower the OPR.
“Our base case remains for another 25-basis-point rate cut from Bank Negara in 2026 given our softer GDP growth forecast.”
Lavanya forecast the Malaysian economy to grow slower in 2026 by 3.8% as compared to an estimated 4.6% growth in 2025.
She said this is largely due to weaker external demand and reduced exports to the US as the effects of frontloading fade.
“Exports to the US were significantly higher for the first few months of 2025 compared to previous years, suggesting there could be some payback in early 2026.
“The sector specific semiconductor tariff will also have implications for Malaysia, as electronics and electrical products exports (HS code 84 and 85) were about 69% of total exports to the US in the first to third quarter of 2025.”
In a separate note to clients, MBSB Research said Bank Negara has been making a “clear and solid” turnaround from the notably more cautious position articulated by the central bank at its July 2025 meeting.
“We view the July 2025 pre-emptive action as a one-off decision and not the start of a broader rate-cutting cycle in the near term.
“At the moment, we see limited benefit in making further adjustments to the OPR.
“Given the nature of the current economic risks, which stem primarily from external uncertainties.
“We think that a more productive approach would involve adopting targeted support measures.”
This, according to MBSB Research, would allow policymakers to directly address the challenges facing specific, vulnerable industries, thus providing a more focused and efficient form of economic assistance.
