BNM keeps overnight policy rate steady, flags rising downside risks to growth

• BNM noted that while the global economy is still expanding, the recent US tariffs and retaliatory measures have negatively impacted the outlook for global trade and growth.

KUALA LUMPUR (May 8): Malaysia's central bank has kept the overnight policy rate (OPR) unchanged at 3%, as expected, while flagging rising downside risks to economic growth.

This marks the 12th consecutive meeting with no rate changes since a 25-basis-point increase in May 2023.

Before the decision, 20 out of 25 economists predicted that Bank Negara Malaysia (BNM) would hold the rate steady, while five expected a 25-basis-point cut, fearing that global trade tensions could affect growth.

BNM noted that while the global economy is still expanding, the recent US tariffs and retaliatory measures have negatively impacted the outlook for global trade and growth.

“This outlook remains subject to considerable uncertainties, which include outcomes of trade negotiations and geopolitical tensions,” it said. “Such uncertainties could also lead to greater volatility in the global financial markets.”

BNM sees downside risks to growth, despite strong domestic demand

BNM said the country’s growth outlook faces downside risks, primarily due to a potential slowdown in major trading partners' economies, weaker sentiment from increased uncertainties affecting spending and investments, and lower-than-expected commodity production.

Malaysia's economy grew in the first quarter, driven by strong domestic demand and export growth. While trade tensions and policy uncertainties may impact the external sector, BNM expects exports to remain stable due to steady global demand for electrical and electronic products and higher tourist spending.

Growth will be supported by job and wage increases in domestic sectors, efforts to boost household incomes, and ongoing public and private investments.

BNM also noted that inflation averaged 1.5% overall and 1.9% for core inflation in the first quarter of 2025.

The bank expects inflation to remain manageable this year, due to moderate global costs and stable domestic demand.

“The overall impact of the announced domestic policy reforms on inflation is expected to be contained,” it said. However, the central bank warned that inflation risks remain, depending on the impact of domestic measures and changes in global commodity prices and trade conditions.

BNM also stated that the ringgit's performance will be affected by external factors, but domestic reforms and investor-friendly measures should help support it.

“At the current OPR level, the monetary policy stance is consistent with the current assessment of inflation and growth prospects,” it said.

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