Bank Negara Malaysia leaves rates unchanged in May

Rates unchanged since July last year: At its meeting on 7 May, 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.

Contained inflation and resilient demand drive hold: The BNM opted against a cut amid heightened external cost pressures, with inflation expected to edge higher due to increased global commodity prices stemming from the Middle East conflict. Still, the Bank refrained from hiking, as it expects both headline and core inflation to remain moderate in 2026, contained by targeted fiscal mitigation measures and softer domestic demand growth.

Rates likely to remain on hold, but Middle East conflict clouds outlook: There is no forward guidance from the Central Bank regarding future changes to interest rates. Most of our panelists expect interest rates to remain on hold through end-2026. That said, a minority anticipates that stronger-than-expected inflation from higher energy prices could put a hike on the table. BNM will reconvene on 9 July.

Panelist insight: Julia Goh and Loke Siew Ting from the United Overseas Bank commented: “We expect BNM to maintain its wait-and-see approach, closely monitoring developments over the next two to three months before considering any recalibration of its monetary policy stance. In the absence of imminent second-round inflationary pressures or a material shift in domestic demand dynamics just yet, we expect the OPR to remain unchanged at 2.75% for now.” Nomura’s Euben Paracuelles and Yiru Chen added: “We reiterate our out-of-consensus forecast that BNM will hike its OPR by 25bp to 3.00% in Q4, based on our optimistic growth outlook, which still appears consistent with BNM’s assessment. We believe BNM is open to normalization and will likely consider reversing its pre-emptive cut in July 2025, especially if above-potential growth is sustained and/or inflation rises significantly.”

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