Central Bank leaves rates unchanged in March

Bank stands pat, as expected: At its meeting on 5 March, Bank Negara Malaysia (BNM) decided to maintain the Overnight Policy Rate (OPR) at 2.75%, where it has stood since July 2025. The decision matched market expectations.

Moderate inflation and resilient domestic demand underpin hold: The BNM held rates because it expects both headline and core inflation to remain moderate in 2026, supported by a lack of excess demand in the economy. Moreover, it expects the impact of volatile global commodity prices to be contained, given the country’s resilient external position. On GDP growth, the Malaysian economy grew 5.2% last year, and the Bank sees this momentum carrying through to 2026, with domestic demand, electrical and electronics exports, and inbound tourism all expected to remain supportive. Thus, the BNM saw no need to adjust policy from a position it deems "appropriate and supportive of the economy amid price stability." Key risks to watch include escalating geopolitical tensions in the Middle East and the potential impact of higher U.S. tariffs on the external sector.

OPR likely to remain unchanged this year, but external risks cloud the outlook: The BNM gave no indication of an imminent move in either direction, reiterating that the current OPR level is appropriate, given the GDP growth and inflation outlook. The majority of our panelists see no changes to the policy rate by December, while the minority is split between a cut and a hike. Those who expect a hike see the current policy level as slightly accommodative and hold an optimistic view of the Malaysian economy and currency going forward. Upside risks to the OPR stem from stronger-than-expected economic growth and commodity-driven inflation, while a sharper-than-expected slowdown in global trade could put a cut on the table. BNM will reconvene on 7 May.

Panelist insight: United Overseas Bank’s Julia Goh and Loke Siew Ting commented: “The risk balance described in the latest MPS is asymmetric toward external downside risks rather than domestic overheating, and there is no indication of emerging demand-driven inflation pressures. The language signals a preference for policy continuity unless geopolitical developments worsen dramatically, or demand-driven inflation unexpectedly re-accelerates. We reiterate our call for OPR to remain at 2.75% this year.” EIU analysts said: “We expect Bank Negara Malaysia (BNM, the central bank) to deliver one rate increase in the second half of 2026, bringing the policy rate to 3%. Our forecast reflects strong near-term growth prospects, underpinned by robust domestic demand and solid trade performance, alongside expectations of continued strength in the ringgit. In addition, BNM views the current monetary stance as slightly accommodative and remains open to gradual policy normalisation.”

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