Bank Negara Malaysia (BNM) has kept interest rates unchanged for now as it awaits the outcome of the US tariff talks.
The central bank said the latest indicators point towards continued global growth and trade, supported by domestic demand and front-loading activities.
It noted that the growth outlook would remain supported by positive labour market conditions, less restrictive monetary policy and fiscal stimulus.
“However, the tariff measures announced by the US and retaliations have weakened the outlook on global growth and trade. This outlook remains subject to considerable uncertainties, which include outcomes of trade negotiations and geopolitical tensions. Such uncertainties could also lead to greater volatility in the global financial markets,” it said.
BNM said Malaysia’s economic activity expanded further in the first quarter, driven by sustained domestic demand and continued export growth.
Moving forward, it said the escalation in trade tensions and heightened global policy uncertainties will weigh on the external sector.
“The continued demand for electrical and electronic goods and higher tourist spending, however, will provide some cushion to exports. Overall, growth is expected to be anchored by resilient domestic demand.
“Employment and wage growth, particularly within domestic-oriented sectors, as well as income-related policy measures, will support household spending. The expansion in investment activity will be sustained by the progress of multi-year projects in both the private and public sectors, the continued high realisation of approved investments, as well as the ongoing implementation of catalytic initiatives under the national master plans,” it said.
Overall, it said the balance of risks to the growth outlook is tilted to the downside, stemming mainly from a deeper economic slowdown in major trading partners, weaker sentiment amid higher uncertainties affecting spending and investments, as well as lower-than-expected commodity production.
In an earlier Bloomberg survey, 20 of 25 analysts predicted that BNM would keep the overnight policy rate (OPR) at 3% in its first meeting since the global trade war erupted, with the rest expecting a 25-basis point cut — the first time easing bets have come into play since the key rate was adjusted to its current level in May 2023.
Policymakers are seeing rising pressure to act decisively as US President Donald Trump’s tariffs threaten to disrupt supply chains and stall the global economy. Malaysia is Southeast Asia’s last holdout against interest rate cuts, and investors too are increasingly expecting the country to give in to mounting economic pressure from the global trade war, Bloomberg reported.
BNM’s Monetary Policy Committee was set to ease only in July, at the earliest, given the fluid environment, the report quoted analysts from HSBC Holdings Plc, Malayan Banking Bhd and CIMB Bank Bhd.
That would mark the end of the pause on the 24% levy the US imposed on Malaysia, and allow BNM space to review incoming data including first-quarter economic growth and external trade, CIMB analysts Azri Azhar, Vincent Loo and Michelle Chia said in a note on Friday. —TMR
The post OPR to stay put at 3%, BNM keeps an eye on trade tensions appeared first on The Malaysian Reserve.
