KUALA LUMPUR: Malaysia’s central bank has greater room to adjust interest rates after changing its policy guidance last month and stands ready to act if inflation pressures intensify as the Middle East conflict keeps energy prices elevated, its governor says.
“We are very vigilant in terms of looking at the price increases,” Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour said in an interview with Bloomberg TV’s Avril Hong yesterday.
“We do have space for us to act accordingly,” if price pressures rise, he said.
BNM kept its benchmark interest rate at 2.75% at its last meeting in September, while dropping its previous description of the policy stance as “appropriate,” a change Abdul Rasheed said gives the central bank greater room to respond if needed.
Investors interpreted the change as opening the door to a potential rate increase. In the swaps market, traders were pricing in yesterday about a 76% probability of a rate hike by BNM within the next six months, according to data compiled by Bloomberg.
“That’s what the market is saying,” Abdul Rasheed said on the sidelines of the International Monetary Fund and World Bank meetings in Bangkok.
“Policy decisions will remain data-dependent, he said, with the monetary policy committee assessing the latest information at each meeting.”
The current rate remains consistent with the outlook for inflation and sustainable economic growth, he added.
Despite a surge in global oil prices fuelled by the Middle East war, inflation in Malaysia has remained moderate, helped in part by government subsidies that keep fuel prices among the lowest in the world.
Malaysia’s position as a net energy exporter, supported by its oil and natural gas reserves, has also helped shield the economy from higher import costs confronting energy-dependent neighbours such as Thailand and the Philippines.
The government expects inflation to average 1.5% to 2.5% this year, after consumer prices rose 1.9% in August from a year earlier. Abdul Rasheed said inflation will hold within the forecast range, but there are risks from a prolonged Middle East conflict and elevated energy prices.
Inflation is expected to pick up in early 2027 as higher energy, food and other input costs feed through to prices, before easing later in the year, according to the government. It forecasts inflation of 1.8% to 2.8% in 2027.
Strong domestic demand and a boom in semiconductor exports have helped cushion Malaysia from disruptions caused by the United States war against Iran, reinforcing expectations that it will remain among South-East Asia’s fastest-growing economies this year.
The government last week raised its 2026 growth forecast to 4.8% to 5.3% from 4% to 5%, as resilient domestic demand and surging exports help offset a challenging global environment. It expects the economy to expand 4.2% to 5.2% next year, supported by sustained domestic demand and investment.
Economic expansion will come in at around 5% this year as Malaysia’s diversified sources of growth will sustain the economy, Abdul Rasheed said.
He acknowledged risks of a slowing artificial intelligence boom but said demand for the nation’s electrical and electronics products would remain strong.
“In our engagement with the businesses, with the multi-national companies that produce these products, you see the order book has grown from about six months, five months ago, to now between 12 to 18 months” he said.
“So that shows that there’s strong demand for these products.”
While Malaysia, as a small and open economy, would be affected by a prolonged conflict in the Middle East, its diverse sources of growth and broad range of trading partners could help cushion the impact.”
The ringgit has remained steady this year even as the Indonesian rupiah and Philippine peso hit record lows.
The Malaysian currency has edged up about 0.6% against the dollar after emerging as the top performer in Asia in 2025, with a gain of 10%.
The currency has remained “resilient,” with a “very healthy two-way flow” in the market, Rasheed said. Abdul Rasheed continues to encourage business, exporters and investors to repatriate and convert their foreign-currency income, he said. — Bloomberg
