Bank Negara Malaysia Maintains Policy Rate at 3.0%

Bank Negara Malaysia (BNM) has opted to keep its main policy rate steady at 3.0%, a decision in line with the expectations of 30 economists who predicted no changes. The rate has remained unchanged since its last increase of 25 basis points in May 2023.

Capital Economics, a leading economic research company, indicates that while other central banks might decrease their rates in the upcoming months, BNM is expected to maintain its current rate throughout the year.

This decision is supported by the strength of the Malaysian economy, which showed robust growth of 4.8% year-on-year in Q4, based on preliminary figures released last week.

The BNM expressed confidence in sustained economic strength into 2025, driven primarily by resilient domestic expenditure, as stated in their announcement today, indicating a positive outlook for the coming year.

However, the future of inflation in Malaysia presents uncertainties. The headline inflation rate was reported at a modest 1.7% year-on-year in December. Yet, it is projected to increase later in the year due to planned subsidy cuts for petrol prices, announced in the budget, aiming to improve public finances. Consequently, the headline inflation is expected to rise above 3% next year.

Inflation exceeding 3% year-on-year could fall outside of what is considered the comfort zone for the central bank, as BNM does not have an explicit inflation target. In its statement today, BNM noted that future inflation will be influenced by domestic policy measures.

Despite some analysts predicting rate cuts for 2025, the majority, including Capital Economics, foresee no changes to the policy rate this year.

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