Bank Negara to cut OPR in July?

New Straits Times

09-05-2025

KUALA LUMPUR: Bank Negara Malaysia's decision to keep the overnight policy rate (OPR) at 3.00 per cent may hold for now but economists expect a possible rate cut as early as July amid growing downside risks to the economy.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the current monetary policy stance remains appropriate, but weakening external conditions could prompt policy easing in the coming months.
"We are still maintaining our call that the OPR will be reduced in the second half of 2025, possibly in July or September," he told Business Times.
Afzanizam pointed to Bank Negara's recent move to lower the statutory reserve requirement (SRR) from 2.00 per cent to 1.00 per cent which will add RM19 billion of liquidity into the banking system as a signal that the central bank is preparing to support the economy if needed.
"Although it is not a signal of monetary policy stance, it shows that Bank Negara will engage the necessary policy tools to support the economy," he said.
Putra Business School associate professor Dr Ahmed Razman Abdul Latiff believes a rate reduction is becoming more justifiable, and July may be the most suitable window.
He also believes Bank Negara should consider lowering the OPR to 2.75 per cent to help stimulate domestic demand in the face of external headwinds.
He said Bank Negara is observing the current situation closely and most likely will make a decision once the implication of reciprocal tariff is made clear after the 90 days deadline.
"In addition, the decision by the Federal Reserve (Fed) to maintain the current rate is also another factor for Bank Negara to maintain the same position," he said.
Meanwhile, economist Dr Geoffrey Williams believes a cut is unnecessary in the near term as Malaysia's direct exposure is limited and upcoming trade agreements could offset the risks.
In this period of uncertainty, Williams said it is important for Bank Negara to remain calm and steady.
"Therefore, there is no need to cut rates now and I do not see a need in the foreseeable future for rates to be cut anytime soon. In fact the US Fed and most global banks are also holding a wait and see stance," he added.
Bank Negara kept the benchmark interest rate unchanged yesterday, citing continued global growth and trade, supported by domestic demand and front-loading activities.
The central bank has kept the OPR at three per cent for 12 consecutive meetings, since May 2023.