PETALING JAYA: Bank Negara Malaysia (BNM) is widely expected to keep the overnight policy rate (OPR) unchanged at 2.75% at its Monetary Policy Committee (MPC) meeting on Thursday, a move that is seen as supportive for financial markets.
Economists said holding rates steady would provide policy stability, while still leaving room for monetary easing should economic conditions deteriorate later in the year.
The expected steady stance follows BNM’s “pre-emptive” 25-basis-point rate cut in July 2025, which lowered the OPR to 2.75% – its first reduction in five years.
The central bank subsequently kept rates unchanged at its MPC meetings on Sept 4 and Nov 6, 2025. Thursday’s MPC meeting will be the first of six scheduled for 2026.
In the United States, the Federal Reserve (Fed) cut its benchmark interest rate three times last year, bringing it to a range of 3.50% to 3.75%, with its next Federal Open Market Committee meeting scheduled for Jan 27-28.
Some analysts now see the Fed holding rates steady throughout 2026, supported by a stronger labour market and stable inflation, with unemployment down to 4.4% and the consumer price index rising only 2.7% in December.
Malaysia’s economic fundamentals remain resilient. Advance gross domestic product (GDP) estimates showed the economy grew 5.7% year-on-year in the fourth quarter of 2025 (4Q25), lifting full-year growth to 4.9%.
The national unemployment rate fell to 2.9%, the lowest in 11 years, while inflation in November 2025 stood at 1.4%.
Economists said these conditions support a steady monetary policy stance.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said BNM is likely to maintain the OPR at 2.75% this week, noting that recent data suggests the move has achieved its objective.
“The latest advance GDP estimates for 4Q25 clearly suggests that the Malaysian economy is resilient,” he told StarBiz.
“It also indicates that the economic policies reform and implementation has yielded its desirable effect, especially on economic growth and market confidence.
“That would mean the pre-emptive 25-basis-point OPR cut in July 2025 has served its purpose.”
Mohd Afzanizam said the justification for additional rate reductions appears unwarranted at this point.
“The central bank certainly has the policy space to prescribe another round of monetary easing, given that the inflation rate is likely to remain fairly stable this year.
“This is something positive for the economy, knowing that the central bank has the room to cut the OPR but chooses to stay put in order to be prudent.”
From an equities perspective, Mohd Afzanizam said monetary easing is generally positive, as it lowers borrowing costs and improves corporate earnings.
“Therefore, it should be positive for the equities market, knowing that BNM has the ability to reduce the OPR,” he said.
On the bond market, he said the potential for lower yields remains, supported by expectations of further US rate cuts.
“In addition, the ongoing fiscal consolidation exercise would mean the government should be able to achieve the fiscal deficits target of 3.5% of gross domestic product in 2026,” he said.
“By extension, the issuance of new government securities would be less abundant, leading to higher demand for bonds.”
Meanwhile, economist Geoffrey Williams said financial markets are firmly pricing in no change in the OPR, warning that any surprise move could unsettle investor sentiment.
“The capital markets are expecting no changes, so if there was a change it would spook the markets,” he said.
Williams added that Malaysia’s macroeconomic fundamentals remain supportive of a steady policy stance.
“BNM has a mandate to set interest rates in order to support sustainable economic growth, stable prices and a stable financial system,” he said.
“All of these are in place with growth expected to be 4% to 4.5% this year, which is sustainable. Inflation will be 1.5% to 2%, which is normal, and the financial system is sound.”
Against this backdrop, Williams believes there is no need for a change in interest rates. However, he cautioned that political risks could weigh on market sentiment this year.
“The risks to Malaysia this year are political stability and negative public sentiment. This will make markets speculate on a possible change of government or anti-government sentiment due to cracking down on free speech,” he said.
He also highlighted concerns over the ringgit. “The ringgit is strong and this harms exports and makes imports cheaper, which competes against domestic suppliers,” he said.
The ringgit was last seen trading at RM4.06 against the US dollar, compared with RM4.48 a year ago.
Yesterday, the FBM KLCI, which tracks the 30 largest stocks by market capitalisation on Bursa Malaysia, closed 0.02%, or 0.41 points, lower at 1,712.33 points.
Meanwhile, the 10-year Malaysian Government Securities or MGS yield stood at 3.47%.
