Bank Negara Malaysia leaves rates unchanged in May

Bank extends hold but cuts reserve requirement: At its meeting on 8 May, Bank Negara Malaysia (BNM) decided to maintain the overnight policy rate (OPR) at 3.00% for the twelfth consecutive meeting. Meanwhile, the Bank cut the statutory reserve requirement (SRR) ratio by 100 basis points to 1.00% for the first time since the start of the Covid-19 pandemic to boost liquidity conditions and stimulate economic activity.

Balanced outlook to inflation and the economy support pause: The BNM extended its pause on the OPR as it expects inflation to remain tame this year. On the flipside, the Bank also projects robust GDP growth this year, underpinned by resilient domestic demand; this ruled out the need for a rate cut in May.

Panelists now split on 2025 outlook: Following recent forecast updates, our panelists are now split on the outlook for the OPR in 2025: Half of our panelists still expect rates to remain stable through December, while the rest see 25–50 basis points of cuts in the coming months. A potentially weaker ringgit and reignited inflation could push the BNM to extend its pause for longer than currently projected, while softer-than-expected GDP growth, particularly amid a souring external panorama, poses downside risks to the policy rate. The Bank will reconvene on 9 July.

Panelist insight: Nomura’s Euben Paracuelles and Yiru Chen expect rates to stay on hold this year and next: “We maintain our forecast that BNM will leave the OPR unchanged at 3% this year and in 2026. […] We believe BNM continues to take a patient rather than pre-emptive approach to deal with elevated external uncertainty […]. The other reason that we believe BNM will keep the policy rate stable, barring a sharper deterioration in the global growth outlook, is that we still see scope for further SRR reductions […], especially if capital outflows contribute to tighter domestic liquidity conditions.” United Overseas Bank analysts Julia Goh and Loke Siew Ting see rate cuts by end-2025: “We pencil in two 25bps OPR cuts in 2H25 (one each in 3Q25 and 4Q25), from status quo previously. This will take the OPR to 2.50% by end-2025. The Monetary Policy Committee (MPC) will next meet on 8-9 Jul, which coincides with the end of the 90-day reciprocal tariff pause that could bring the tariff rate for Malaysia back up to 24% from the current baseline 10% tariff imposed.”

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