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New Straits Times
24-05-2025
- Business
- New Straits Times
Bank Negara has policy space as inflation remains contained: Economists
KUALA LUMPUR: Bank Negara Malaysia may have room to ease interest rates in the coming months as inflationary pressures remain contained and external economic headwinds build, economists said. April's consumer price index (CPI) data showed that headline inflation held steady at 1.4 per cent year-on-year, unchanged from March, despite festive-season spending during Hari Raya. Core inflation, however, inched up to two per cent, the highest in 17 months, driven by firmer price pressures in services and durable goods. Putra Business School economic analyst Prof Dr Ahmed Razman Abdul Latiff said the benign inflation backdrop, coupled with rising global risks, supports the case for a potential 25 basis-point reduction in the Overnight Policy Rate (OPR) in the second half of the year. He pointed to geopolitical tensions and reciprocal tariff measures by the United States (US) as key threats to global trade, which could spill over into Malaysia's export-oriented economy. Still, Razman expects domestic growth to remain resilient. "Despite all the uncertainties caused by US tariffs, the economic outlook for the second half of the year remains positive, supported by stronger trade activity and expected higher foreign direct investments," he told Business Times. He added Malaysia's chairmanship of Asean this year is also expected to lift domestic demand through enhanced regional collaboration. According to the Department of Statistics' (DOSM) report on Wednesday, price increases in April were led by personal care and housing costs. Personal care saw the sharpest rise at 4.1 per cent, while education and housing expenses increased between 2.0 and 2.3 per cent. Food and beverage inflation eased slightly to 2.3 per cent from 2.5 per cent a month earlier, helped by lower vegetable and dairy prices despite festive demand. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said while inflation is largely under control, Bank Negara may soon need to pivot its policy stance if growth slows meaningfully. "The current economic environment is highly fluid, which necessitates a careful and well-calibrated monetary policy response," he said, adding that a rate cut of 25 basis points could be considered if signs of a slowdown persist. He said gross domestic product growth in the second half could dip below four per cent, warranting policy support. This outlook is consistent with Hong Leong Investment Bank (HLIB) economist Felicia Ling's view that the inflation environment remains relatively benign. "Recent data suggests a benign domestic inflation with minimal inflationary pressures, leaving Bank Negara more room for monetary easing," she said in a research note. HLIB has maintained its full-year CPI forecast at 2.7 per cent but cautioned that global demand weakness and subdued commodity prices pose downside risks. Maybank Investment Bank chief economist Suhaimi Ilias said broader inflation trends have remained muted despite policy changes. "Inflation remains subdued at sub-two per cent year-to-date even with the 13.3 per cent minimum wage hike in February," he said. He added that the limited price pass-through may be attributed to the hike's initial application only to large employers. Meanwhile, DOSM said deflation persisted in certain segments, led by a 4.5 per cent fall in information and communication and a 0.1 per cent dip in clothing and footwear. Public Investment Bank economist Sabrina Edora said while inflation will likely stay below three per cent for the year, risks could emerge from domestic policy shifts. These include fuel subsidy reforms and a wider service tax net. Still, she believes any inflationary impact will be manageable if such reforms are introduced gradually and supported by offsetting measures. "Given the backdrop of lower global commodity prices, the near-term inflation trajectory is expected to remain benign, even in the event of subsidy rationalisation," she said. Bank Negara's latest monetary policy statement projected headline inflation to average between 2.0 and 3.5 per cent this year, with core inflation between 1.5 and 2.5 per cent. With three policy meetings left in 2025, in July, September and November, economists say the central bank has policy space if conditions deteriorate. A 25 basis-point cut in the third quarter is still on the table, Edora said, assuming stable macroeconomic conditions and continued electricity tariff subsidies.
New Straits Times
08-05-2025
- Business
- New Straits Times
Economy continued to grow despite tariff uncertainties- BNM governor
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.
The Star
08-05-2025
- Business
- The Star
BNM Governor: Economy continues to grow despite tariff uncertainties
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
The Sun
05-05-2025
- Business
- The Sun
OPR expected to be reduced this week
PETALING JAYA: The Monetary Policy Committee (MPC) expects Bank Negara Malaysia (BNM) is predicted to reduce the Overnight Policy Rate (OPR) from 3 percent to 2.75 percent during its meeting this Thursday. According to Kosmo, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the estimation is made based on the reciprocal tariffs imposed by the United States (US) recently. 'When the OPR is reduced, it will provide an economic boost, particularly to domestic demand such as consumption and investment. 'The Malaysian economy is very open in terms of international trade and foreign portfolio investment (FPI) as well as foreign direct investment (FDI). 'Therefore, this tariff situation will have a negative impact, especially on the country's export sector to the US, which is one of Malaysia's main trading partners,' he told the Malay daily when contacted, today. Following the latest US tariff announcement, Bank Muamalat has also lowered its forecast for Malaysia's gross domestic product growth rate from 4.7 per cent to 4.1 per cent this year. The Bank of Thailand is among the central banks that have recently cut their key interest rate, from 2 percent to 1.75 percent. The reduction is seen as an initial step to address the downside risks to economic growth amid the tariff shock, a decline in tourist arrivals, and tight financial conditions. Meantime, Afzanizam also expects the ringgit's position to continue strengthening against the US dollar, due to declining confidence in the currency following reciprocal tariffs that will negatively impact the US economy.
New Straits Times
02-05-2025
- Business
- New Straits Times
BNM likely to cut OPR by 25 bps on July 9, by-passing MPC May meeting
KUALA LUMPUR: CIMB Securities Sdn Bhd anticipates Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) by 25 basis points (bps) to 2.75 per cent on July 9, 2025, by-passing the Monetary Policy Committee (MPC) meeting in May. It said in a note today that the move would serve to allow the central bank to assess more incoming data, particularly related to external trade following the Liberation Day tariffs, including the first quarter of 2025 gross domestic product (GDP) announcement on May 16, April's external trade (May 20) and May's external trade (June 20) data. "Trade negotiations with the United States (US) are still ongoing. As the implications for Malaysia from de-escalation versus reciprocal tariffs are wide, reservation of judgment is warranted. The July MPC meeting will also mark the end of the US' 90-day tariff pause," it said. The bank also expects a more dovish tone and the MPC will explicitly acknowledge the downside risks that will weigh on the economy. It noted that a recent statement by BNM Governor Datuk Seri Abdul Rasheed Ghaffour highlighted downside risks stemming from the current trade environment, suggesting that the official GDP growth forecast of 4.5–5.5 per cent may be revised downward. "BNM currently projects gross exports to grow by 5.2 per cent in 2025, down from 5.7 per cent in 2024. As of March, year-to-date export growth averaged 4.4 per cent. However, recent indicators, including the latest manufacturing purchasing managers' index (PMI), are showing further signs of weakness." It said the delay in the sales and service tax (SST) expansion and the planned rationalisation of RON95 fuel subsidies, which will affect a portion of the population, are also expected to limit upward pressure on prices.
