Call for prudence as interest rates stay pat
Bank Negara Malaysia (BNM) held its overnight policy rate (OPR) steady at 2.75% amid global economic uncertainties, including Middle East conflict-driven supply chain disruptions and rising energy prices. Economists warn of potential downside risks to Malaysia’s growth, with consumers and businesses expected to tighten spending due to higher costs and inflationary pressures, though BNM prioritizes anchoring inflation expectations over immediate rate cuts.
Bank Negara Malaysia (BNM) maintained its overnight policy rate (OPR) at 2.75% following its latest Monetary Policy Committee meeting, citing elevated downside risks to global growth from the prolonged Middle East conflict and tightening financial conditions. While acknowledging resilient global growth in the first quarter of 2026 (1Q26), BNM highlighted sharp increases in energy and commodity prices as key threats to momentum, though potential upside includes conflict de-escalation and stronger tech spending. For Malaysia, BNM reported sustained growth momentum in 1Q26, driven by domestic demand and strong exports. However, economists warn of spillover risks: Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, noted Malaysia’s vulnerability to global slowdowns, with higher oil prices squeezing consumer budgets and prompting selective spending. He suggested the OPR may remain unchanged for the year or face cuts to support growth, as businesses adopt cost-cutting measures. Lee Heng Guie, executive director at the Socio-Economic Research Centre, cautioned against early monetary easing, arguing BNM must prioritize curbing inflation risks amid supply-driven shocks. While first-round inflation from oil prices and supply chain disruptions is evident, demand-driven inflation remains limited. Lee warned that escalating Middle East tensions could trigger a global recession with high inflation, harming Malaysia’s exports, imported inflation, and domestic spending. Logistics costs have surged due to rising shipping and air cargo expenses, with Malaysia’s producers’ price index (PPI) jumping 4.1% month-on-month in March. Higher business costs will likely be passed to consumers, leading to budget cuts and a shift toward essential purchases. Mohd Afzanizam predicted immediate impacts on airlines and tourism as discretionary spending declines. BNM’s decision reflects a cautious stance, balancing growth support against inflation risks. Economists remain divided: Afzanizam expects steady or lower rates, while Lee advocates patience to avoid stoking second-round inflation. Malaysia’s 2026 GDP growth estimate stands at 4.3%, though external shocks could test this outlook.
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