BNM held the OPR at 2.75% in its September MPC meeting, in line with expectations.
Policy tone turned more balanced, noting both downside risks and upside potentials in the global landscape, while projecting inflation to stay moderate into 2026.
We believe the materialization of tariff risks could prompt BNM to reassess risks and adjust its policy path ahead.
We share BNM’s view that domestic demand remains resilient for now, while remaining mindful that sector-specific tariffs could trigger broader growth spillovers.
We see scope for a 25-bp cut in 2026 if tariffs intensify, though BNM’s neutral tone suggests no urgency to ease. We keep our OPR forecast at 2.75% through 2025 and 2026.
OPR kept steady in September
Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 2.75% in its September Monetary Policy Committee (MPC) meeting, in line with expectations. This marks the first hold since July’s pre-emptive 25-bp cut, which was aimed at cushioning downside risks from external headwinds.
BNM’s tone turns more neutral
BNM struck a more balanced tone on the economic outlook. On the global front, the MPC acknowledged downside risks from “potentially higher tariffs, especially product-specific ones,” but also pointed to upside potential from “favourable outcomes in ongoing US trade negotiations and pro-growth policies in major economies.”
Domestically, BNM reiterated that growth will remain supported by resilient household spending and investment, with additional support likely from Budget 2026 measures as Malaysia enters an election cycle. BNM also noted that the gradual pace of subsidy rationalisation will help sustain private consumption. Thus, BNM reaffirmed its 2025 GDP growth forecast of 4.0-4.8%.
On the inflation front, BNM now expects “the easing trend” in global commodity prices to contribute to moderate domestic inflation. Core inflation is projected to stay stable into 2026, supported by the absence of demand-driven pressures. In our view, this slightly more dovish inflation assessment suggests some room for further policy easing if needed.
Tariff developments could change BNM’s risk assessment
While BNM’s tone is overall neutral, the central bank reiterated its stance that the risks to growth remain “on the downside”. We believe BNM is comfortable with the current level, but could shift towards a dovish stance should unfavourable tariff developments materialize and threaten growth momentum.
As detailed in our recently released GDP report, we believe tariff-related risks have increased over the past months. When BNM eased in July, reciprocal US tariffs were set at 25%, forming the baseline of its revised 2025 GDP forecast of 4.0–4.8% YoY. Since then, while Malaysia’s reciprocal tariff has been reduced to 19%, the Trump administration has launched Section 232 investigation on semiconductors and furniture imports for potential tariffs (Figure 2). We estimate that a 100% semiconductor tariff (with partial exemptions) together with furniture tariffs could push Malaysia’s effective tariff rate above 35%, higher than BNM’s 25% baseline.
Growth risks tilted to downside
We share BNM’s view that domestic demand remains resilient for now. The latest 2Q25 GDP print indicated solid private consumption and investment, supporting our 2025 baseline GDP forecast of +4.2% YoY under the current 19% tariff scenario. On a positive note, a federal appeals court in August ruled that President Trump overstepped his authority in imposing country-level tariffs under the International Emergency Economic Powers Act (IEEPA). The final outcome remains uncertain, pending the administration’s appeal to the Supreme Court.
Nonetheless, sector-specific tariffs could have broader spillovers. Beyond weaker exports, risks include labour market softening and reduced FDI, particularly if semiconductor firms shifted their production to the US. The export-oriented segment of the manufacturing sector accounts for c.10.9% of total employment. If sectoral tariffs are implemented, growth could ease toward 4.0% in 2025 and slip further to 3.6–3.9% in 2026.
Scope for easing but no urgency to cut for now
We continue to see scope for a further 25-bp cut in 2026 if tariffs intensify. A rate cut would ease borrowing costs, keep domestic firms competitive, and underpin investment. A firmer ringgit, supported by narrowing US-Malaysia rate differentials on anticipated Fed pivots, alongside stable inflation, would also lower the hurdle for easing. Bloomberg’s implied OPR path from ringgit interest rate swaps reflects this view, pointing to one cut over the next year (Figure 3).
That said, judging by BNM’s neutral tone, there is no urgency to cut. BNM will likely remain data-dependent and access the transmission of July’s cut through early 2026 before further moves. For now, we maintain our forecast for OPR to stay at 2.75% through 2025 and 2026.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.189564 | 4.225840 |
| EUR | 4.930937 | 4.944344 |
| CNY | 0.590125 | 0.591709 |
| HKD | 0.538841 | 0.543525 |
| SGD | 3.269557 | 3.298024 |