Although the economy is projected to demonstrate robust growth of 5.1% last year, inflation has largely remained subdued,
indicating that BNM will be cautious regarding rate cuts as it seeks to prevent further decline of the ringgit. Bank Negara Malaysia (BNM) plans to hold its primary policy rate steady at 3.00% for the tenth consecutive session on Wednesday, maintaining this rate throughout the year as economic expansion continues to be strong and inflation remains in check, according to a Reuters survey.
While the economy is forecasted to achieve significant growth of 5.1% last year, inflation – recorded at 1.8% in November – has mostly stayed muted, implying BNM is in no hurry to reduce rates to bolster growth, as it aims to prevent further depreciation of the ringgit.
The currency has weakened by approximately 2.3% since Donald Trump emerged victorious in the US presidential election in November.
All 30 economists surveyed from January 10 to 17 anticipated BNM would maintain its overnight policy rate at 3.00% on January 22 and keep it stable throughout the year, a viewpoint that has remained consistent for over a year.
This stands in contrast to other central banks in the region – Bank Indonesia, the Bank of Thailand, the Philippine central bank, and the Bank of Korea – which initiated their easing cycles in 2024.
“The robustness in the economy, surpassing its growth target in 2024, indicates BNM is not eager to lower rates to support growth, and with inflation well managed, there is no need to hike rates either,” stated Heron Lim, an economist at Moody’s Analytics.
Despite BNM lacking a currency mandate, its November policy statement reflected a more cautious stance due to potential volatility in the ringgit, spurred by a stronger dollar and elevated tariffs under Trump’s administration.
The central bank’s perspective aligns with poll forecasts, suggesting it will refrain from easing this year to avoid further weakening the currency.
“The slower easing trajectory from the US Fed necessitates BNM to consider the currency’s strength; however, it will likely need to wait for additional clarity from the US Fed before taking action,” Lim added.
Median projections indicated Malaysia’s economic growth would average 4.7% in 2025 and 4.6% in 2026, while inflation is expected to average 2.4% in both years, remaining largely unchanged from the previous poll.
Even though inflation trends downward in 2024 and growth maintains stability, the central bank stated in its November announcement that it would stay vigilant regarding domestic inflation and growth patterns heading into 2025.
