BNM Governor: Economy continues to grow despite tariff uncertainties

The Star

08-05-2025

KUALA LUMPUR: Following is the transcript of Bernama's email interview with Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour on the Overnight Policy Rate (OPR) and Statutory Reserve Requirement (SRR).
Q1. Governor, can you walk us through the Monetary Policy Committee's (MPC) decision on the Overnight Policy Rate (OPR) today? The MPC has decided to maintain the OPR at 3 per cent at its meeting today.
At present, this decision remains consistent with our assessment of the Malaysian economy. The MPC remains vigilant to ongoing developments that may affect our growth and inflation prospects. We will continue to assess our monetary policy stance to ensure that it remains conducive to sustainable economic growth amid price stability.
Q2. How do you see these tariffs and shifting global trade dynamics impacting Malaysia's economic outlook moving forward?
As a small and open economy, we acknowledge that Malaysia will face both direct and indirect impacts from these tariffs. Beyond the direct impact of tariff imposition, events that affect the global economy may also spill over to affect our growth and inflation trajectory. Given current developments, we will be reviewing the GDP growth forecast of 4.5-5.5 per cent for 2025, which was announced in March. But we do not expect a recession. While outcomes from trade negotiations remain uncertain, we are facing this from a position of strength.
Latest data indicates that Malaysia's economy continued to grow in the first quarter of 2025. This suggests our domestic demand remains resilient, anchored by household spending and investment activity.
Moving forward, employment and wage growth, and income-related policy measures will support household spending. Investment activity will be sustained by the continued realisation of approved projects. Together, this will provide us with a buffer against global shocks.
An escalation of trade tensions and heightened global policy uncertainties will weigh on Malaysia's external sector. But continued demand for our electrical and electronic (E&E) products, which are excluded from the tariffs, and higher tourist spending will cushion our exports. We expect travellers to continue visiting Malaysia, encouraged by improved flight connectivity, visa-free policies, and Visit Malaysia Year 2026 promotions. Our diversified exports structure also reduces our reliance on any single product or market. At present, no single market accounts for more than 15 per cent of Malaysia's exports.
Downside risks could stem from a deeper economic slowdown across our major trading partners. Weaker sentiment can affect domestic spending and investments. Lower-than-expected commodity production will also weigh on growth.
On the other hand, favourable trade negotiation outcomes, pro-growth policies in major economies, as well as more robust tourism activity could raise Malaysia's growth prospects.
Inflation stayed moderate in the first quarter of this year. We do not expect tariffs to significantly impact our domestic inflation outlook amid moderate global cost conditions and the absence of excessive domestic demand pressures.
Let me explain why.
Ongoing trade tensions are expected to weigh on the global demand outlook, which will in turn, support a further easing of global commodity prices. This can help drive down production costs for businesses in Malaysia. The contained cost environment, including lower commodity prices, ensures that conditions will remain favourable for previously-announced domestic policy reforms later this year, including the planned subsidy rationalisation of RON95.
Q3. How is BNM planning to navigate these tariff developments and ongoing trade uncertainty? Can we expect a rate cut soon?
Malaysia's economy is in a relatively stable place for now. But as I have mentioned earlier, we are facing downside risks to our growth. We continue to monitor the situation closely and stand ready to act if need be.
Malaysia's small and open nature means that our economy, exchange rate, and financial markets are affected by external shocks. Global developments are beyond our control, but we can shape our response to them. In doing so, we have a range of policy tools that allow us greater flexibility and the ability to tailor our response to specific issues. These are particularly useful if the external shocks do not lead to broad-based domestic impact and hence, would benefit from more targeted support.
For example, BNM's market operations will continue to ensure orderly functioning of the foreign exchange market and uninterrupted financial intermediation during times of volatility. Separately, we also today announced plans to ease the Statutory Reserve Requirement (SRR) to release additional liquidity into the financial system.
Aside from this, we maintain close coordination with the government on fiscal measures to ensure we are working towards the same objectives. We understand that this period of uncertainty can be concerning for everyone. As the situation unfolds, we aim to continue sharing our assessments of the Malaysian economy and the rationale behind our policy decisions so that the public and businesses can have the information needed to plan accordingly.
Q4. We noticed that BNM also eased the SRR. Could you share a bit more about what the SRR is and what is the rationale behind the SRR cut?
Let me first emphasise that the SRR is not a signal of our monetary policy stance. The OPR remains BNM's sole indicator used to signal our monetary policy stance.
The SRR is a liquidity management tool that BNM uses to withdraw or release liquidity into the banking system on a longer-term basis. SRR refers to the portion of funds that banks are required to hold as reserves with BNM. Once these funds are part of the banks' reserves, they are not able to use it for other purposes.
Our decision today to ease the SRR is part of BNM's continuous efforts to ensure sufficient liquidity in the domestic financial system. This will facilitate banks to better manage their liquidity in an environment of greater financial market volatility and provide continued support for financial intermediation activities. - Bernama