Malaysia Keeps Rate Unchanged on Steady Growth, Inflation

Malaysia's central bank, Bank Negara Malaysia (BNM), has maintained its overnight policy rate (OPR) at 3.00% for the seventh consecutive meeting, aligning with market expectations. The decision, announced on June 20, 2024, reflects the central bank's commitment to supporting economic growth while managing inflation. This article explores the reasons behind BNM's decision, the key indicators influencing its monetary policy, and the risks and challenges facing the Malaysian economy in the near and long term.



BNM's decision to keep the OPR unchanged is supported by several factors, including robust economic growth and stable inflation. The Malaysian economy expanded by 3.7% in 2023, and GDP growth is projected to range between 4% and 5% in 2024. This resilient growth is driven by the recovery in exports and resilient domestic expenditure. The central bank expects economic activity in 2025 to remain strong, supported by factors such as wage growth, higher minimum wages, and civil servant salary increases.

Inflation has been stable and manageable, with headline inflation slowing to 1.8% in 2024 from 2.5% in 2023. The average headline and core inflation in the first five months of 2024 was 1.8%, and the central bank forecasts headline and core inflation to average between 2.0%-3.5% and 2.0%-3.0%, respectively, for the rest of 2024. BNM expects inflation in 2025 to stay manageable due to easing global costs and stable domestic demand.

However, the Malaysian economy faces several risks and challenges that could impact its economic growth and inflation outlook. These include:

1. Weaker external demand and potential declines in commodity production: Weaker external demand and potential declines in commodity production could negatively impact Malaysia's economic growth. BNM acknowledges this risk and maintains a supportive monetary policy stance to mitigate these challenges.
2. Volatility in the ringgit and geopolitical issues: Volatility in the ringgit and mounting headwinds from geopolitical issues abroad could impact Malaysia's economic growth and inflation. BNM stays cautious and maintains the current policy hold to manage these challenges.
3. Potential inflationary pressures from subsidy reforms: The reform of the RON95 petrol subsidy could push inflation higher, potentially prompting BNM to act sooner rather than later. The central bank monitors inflation closely and is prepared to adjust monetary policy if necessary.
4. Disruptions from U.S. tariffs and trade tensions: Disruptions from U.S. tariffs and trade tension-fueled volatility in foreign-exchange and financial markets could alter Malaysia's growth trajectory. BNM stays vigilant and assesses the specifics of these measures once they emerge, rather than acting preemptively.

In conclusion, Malaysia's central bank, BNM, has maintained its overnight policy rate at 3.00% to support economic growth and manage inflation. The decision is based on a robust economic growth outlook and stable inflation, but the central bank remains vigilant to potential risks and challenges, such as weaker external demand, geopolitical issues, and subsidy reforms. By addressing these risks and challenges, BNM can help maintain a stable economic growth and manageable inflation outlook for Malaysia in the near and long term.