Central Bank cuts rates in July

Latest bank decision: At its meeting on 9 July, Bank Negara Malaysia (BNM) decided to reduce the overnight policy rate (OPR) by 25 basis points to 2.75%, with the ceiling and floor rates of the corridor of the OPR correspondingly reduced to 3.00% and 2.50%, respectively. The cut was the first in five years. For the past two years, the BNM has been keeping rates steady.

Risks to GDP growth drive hold: The Bank said its decision aimed to support the economy: The BNM noted that risks to GDP growth are tilted to the downside due to weaker global trade, softer economic sentiment and lower-than-projected commodity output. Moreover, the Bank expects inflation to remain controlled in the near term, giving room for a rate cut.

BNM to hit the brakes again: Going forward, the majority of our panelists expect rates to remain at current levels, while the rest anticipate a 25 basis point cut. Softer-than-expected GDP growth, particularly due to intensifying frictions in global trade, poses a downside risk to the policy rate. The Bank will reconvene on 4 September.

Panelist insight: Nomura’s Euben Paracuelles and Yiru Chen said: “We forecast that BNM will leave the OPR unchanged at 2.75% for the remaining two meetings of the year (4 September and 6 November), and throughout 2026. […] We think BNM’s cut is seen by the MPC as insurance against the materialization of downside risks, which stem from higher global trade policy uncertainty.” EIU analysts said: “We assign a 60% probability to BNM leaving its policy rate unchanged at 2.75% in 2025. The likelihood of a further cut, though not negligible (40% probability), will hinge on the trajectory of upcoming data for GDP (out on July 18th) and inflation (July 22nd). Signs of persistent economic softness or downside surprises in inflation could tip the balance toward another rate reduction.”

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