Bank Negara Malaysia Maintains OPR at 3.00% But Analysts Predicts July Cut
Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) at 3.00% during its recent Monetary Policy Committee (MPC) meeting, while reducing the Statutory Reserve Requirement (SRR) by 100 basis points to 1%, effective May 16, 2025.
While Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) at 3.00% for the past 12 meetings, economists predict a potential cut as early as July due to growing downside risks to the economy. The central bank has signaled a willingness to adjust the OPR, particularly if economic growth slows down. The current OPR level is deemed consistent with the current assessment of inflation and growth prospects, but a potential cut could be considered if the economic outlook worsens
The Bank Negara Malaysia (BNM) has maintained the Overnight Policy Rate (OPR) at 3.00% during its recent Monetary Policy Committee (MPC) meeting held on May 7-8, 2025. However, the Statutory Reserve Requirement (SRR) has been reduced by 100 basis points to 1%, effective May 16, 2025. This decision reflects a dovish monetary policy stance, aimed at mitigating downside risks to domestic growth amidst global trade uncertainties and manageable inflation risks.
The MPC's statement highlighted concerns about downside risks to growth, aligning with expectations. Although the SRR cut does not directly reflect the OPR stance, it signals an easing in liquidity, influencing the money market curve. This move is anticipated to lead to a faster decline in the 3-month Kuala Lumpur Interbank Offered Rate (KLIBOR), potentially dropping below 3.50% before the July MPC meeting. The forecast for the 10-year Malaysian Government Securities (MGS) yield remains at 3.55% by the end of 2025, with potential upside risks from favorable outcomes in tariff negotiations.
In parallel, the Federal Reserve maintained the federal funds rate (FFR) at 4.25%-4.50% during its May 6-7, 2025 meeting, marking the third consecutive hold. The Federal Open Market Committee (FOMC) statement noted increased uncertainty in the economic outlook, particularly regarding stagflation risks. Consequently, the 2025 FFR outlook has been revised to include 75 basis points of cuts, targeting a range of 3.50%-3.75%, down from the previous forecast of 50 basis points of cuts. The outlook for 2026 remains unchanged, with an expected 50 basis points of cuts, aiming for a range of 3.00%-3.25%.
The BNM's monetary policy for 2025 continues to focus on maintaining price stability to support sustainable economic growth. Policy decisions will be guided by the MPC's assessment of risks to Malaysia's inflation and growth outlook. The central bank remains vigilant on global developments and potential spillovers to the domestic economy, ensuring that monetary policy remains data-dependent.
The International Monetary Fund (IMF) has assessed Malaysia's current monetary policy stance as appropriate but has emphasized the need for readiness to tighten policy in 2025 if inflation risks materialize. The IMF's Article IV Mission report on Malaysia, published in December 2024, highlighted the importance of maintaining exchange rate flexibility and continuing fiscal consolidation to rebuild fiscal buffers. The IMF projects Malaysia's gross domestic product growth to moderate from 5.0% in 2024 to 4.7% in 2025, reflecting slower investment growth and heightened global uncertainties. This aligns with Bank Negara's forecast range of 4.8% to 5.3% for 2025.
In summary, the BNM's recent monetary policy decisions reflect a cautious approach to supporting economic growth while managing inflation risks. The reduction in the SRR and the dovish stance indicate a proactive response to global economic uncertainties and domestic growth challenges. The central bank's focus on price stability and sustainable growth remains paramount, with policy decisions being data-dependent and responsive to evolving economic conditions.