By Rozanna Latiff
KUALA LUMPUR (Reuters) – Malaysia’s central bank held its benchmark interest rate steady on Thursday and most analysts expect it to stay that way for the rest of the year.
Soft inflation and relatively resilient economic growth prompted Bank Negara Malaysia (BNM) to keep its overnight policy rate at 2.75%, as expected, after cutting it for the first time in five years at its previous policy review in July.
The central bank said in a statement that heading into 2026, economic growth will continue to be driven by domestic demand, while employment, wage growth and income-related policy measures will remain supportive of household spending.
The outlook was subject to uncertainties, it said, flagging downside risks from slower global trade, weaker sentiment, and lower-than-expected commodity production.
In a recent Reuters poll, most of the 28 economists surveyed said they expect BNM to hold rates until the end of the year. Six, however, forecast a 25-basis-point cut to 2.50% while one saw a deeper 50-basis-point cut to 2.25%.
OCBC senior ASEAN economist Lavanya Venkateswaran said she expects growth to slow sharply in the second half of the year, leaving room for another cut.
But the central bank’s Thursday statement signals a “less dovish” stance, suggesting it would take “significant downside surprises to incoming data for BNM to move the needle on the policy rate,” she said.
Barclays analysts also took note of the tone from the central bank and said they now expect a rate cut in the first quarter of 2026 instead of their earlier forecast of November this year.
Inflation was expected to remain moderate this year amid contained global cost conditions, BNM said, adding that headline and core inflation averaged 1.4% and 1.9% respectively in the first seven months.
The government expects the economy to grow between 4% and 4.8% this year, lower than an initial forecast of 4.5% to 5.5% due to trade and tariff uncertainties. Malaysia has been hit with a 19% tariff on its exports to the United States, although some goods remain exempt pending a review of U.S. laws.
In the second quarter, the economy grew 4.4% from a year earlier, matching the pace in the first three months of the year.
Gareth Leather, senior Asia economist at Capital Economics, is among those who think there will be further easing this year, saying that tighter fiscal policy, falling commodity prices and the impact of U.S. tariffs are expected to weigh on the economy.
(Reporting by Rozanna Latiff; Editing by John Mair and Edwina Gibbs)
