Bank Negara Malaysia (BNM) today announced a reduction in its Overnight Policy Rate (OPR) by 25 basis points to 2.75%. The decision by the Monetary Policy Committee also sees a corresponding adjustment of the OPR corridor, with the ceiling and floor rates now at 3% and 2.5% respectively.
This move marks the first OPR cut by the central bank since July 2020, when it was brought down to a historical low of 1.75% during the COVID-19 pandemic. The OPR had been maintained at 3.00% since May 2023.
In its statement, BNM indicated that the reduction is a “pre-emptive measure aimed at preserving Malaysia’s steady growth path amid moderate inflation prospects.” The decision comes as the global economic outlook, while still supported by consumer spending and positive labor market conditions, faces headwinds from uncertainties surrounding tariff developments and geopolitical tensions. These factors could lead to increased volatility in global financial markets and commodity prices.
For Malaysia, the central bank noted continued growth in economic activity during the second quarter, driven by sustained domestic demand and export growth. Looking ahead, BNM notes that growth is expected to remain robust, underpinned by resilient domestic demand, supported by employment and wage growth, particularly in domestic-oriented sectors, and income-related policy measures. Investment activity is also anticipated to remain strong due to multi-year projects, high realization of approved investments, and catalytic initiatives under national master plans.
While acknowledging the potential for stronger export prospects fueled by favorable trade negotiation outcomes, pro-growth policies in major economies, continued demand for electrical and electronic goods, and robust tourism, BNM cautioned that the balance of risks to the growth outlook remains tilted to the downside. Key risks include a slower global trade environment, weaker sentiment, and lower-than-expected commodity production.
On the inflation front, headline and core inflation averaged a moderate 1.4% and 1.9% respectively in the first five months of 2025. BNM projects overall inflation for 2025 to remain moderate, attributed to contained global cost conditions and the absence of excessive domestic demand pressures. The impact of announced and upcoming domestic policy reforms on inflation is also expected to be contained.
The ringgit’s performance will continue to be primarily influenced by external factors. However, Malaysia’s favorable economic prospects, ongoing domestic structural reforms, and initiatives to encourage capital flows are expected to provide enduring support for the local currency.
The MPC affirmed its commitment to remain vigilant to ongoing developments and to continuously assess the balance of risks to both domestic growth and inflation.
