BNM likely to stand pat on policy rate after July’s surprise, economists say

• “Despite external risks, BNM remains upbeat on domestic demand, supported by a strong labour market, policy measures, and sustained investment from infrastructure and development initiatives,” RHB Investment Bank said.

KUALA LUMPUR (Sept 2): Malaysia’s central bank is widely expected to keep interest rates steady on Thursday with the domestic growth engine still running while keeping its doors open for potential easing, economists said.

Bank Negara Malaysia (BNM) will maintain the overnight policy rate at 2.75% at its second-last meeting of the year, according to 22 of 24 economists polled by Bloomberg. The remaining two pencilled in another 25-basis-point cut to the benchmark rate.

“Despite external risks, BNM remains upbeat on domestic demand, supported by a strong labour market, policy measures, and sustained investment from infrastructure and development initiatives,” RHB Investment Bank said.

The policy rate was reduced by 25 basis points last July, the first move in nearly two years, in what the central bank described as a “pre-emptive measure” to support economic growth at a time of moderate inflation.

Malaysia’s gross domestic product expanded 4.4% in the second quarter from a year earlier as robust consumption and investments cushioned the deceleration in exports. BNM is banking on domestic demand to help maintain economic growth at 4.0%-4.8% this year.

Still, “we think the case for another cut is a non-negligible risk” in the final quarter of the year, said UOB, given a moderate inflation outlook coupled with lingering downside risks to growth prospects.

The full impact of US tariffs, globally and domestically, will likely be seen “only in the later part of this year or early next year”, the bank said. Further, BNM’s dovish stance also suggests that the door remains open for another cut to reinforce growth heading into 2026, it added.

For the full year, headline inflation is projected to remain within the 2.0% to 3.5% range, according to BNM’s latest guidance.

Malaysia’s consumer price index, the country's main gauge of inflation, rose 1.2% year-on-year in July, largely driven by a spike in insurance premiums and higher prices of restaurant and accommodation services.

Core inflation, a proxy of domestic demand pull, held steady at 1.8% for the third consecutive month.

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