As expected, Bank Negara Malaysia maintained the Overnight Policy Rate (OPR) at 2.75% at its Monetary Policy Committee meeting today, citing resilient economic growth, contained domestic inflation and strong industrial activity.
Standard Chartered said recent economic data supports the central bank’s current policy stance, although policymakers are likely to remain cautious over external inflation risks stemming from renewed geopolitical tensions in the Middle East.
Standard Chartered highlighted that Malaysia’s Industrial Production Index (IPI) expanded 8.4% year-on-year in May, broadly matching April’s 8.2% growth and reinforcing expectations of solid second-quarter economic performance.
The expansion was led by the manufacturing and mining sectors, with manufacturing contributing 5.1 percentage points to overall industrial production growth.
Within manufacturing, the electrical and electronics (E&E) industry accounted for 3.7 percentage points of the increase, underlining the sector’s continued role as a key driver of Malaysia’s economy.
Meanwhile, the mining sector contributed 3.1 percentage points, supported primarily by stronger natural gas production amid rising electricity demand driven by heatwaves and expanding data centre operations.
On a seasonally adjusted basis, industrial production during April and May was 5% higher than the first quarter, with mining recording an 8.6% expansion and manufacturing growing 3.5%.
According to Standard Chartered, the robust industrial output validates BNM’s view that Malaysia’s strong economic fundamentals continue to support resilient growth.
The research house believes the central bank will leave the OPR unchanged despite introducing slightly more hawkish language in its May monetary policy statement.
It noted that BNM had revised its policy assessment from describing monetary policy as “appropriate and supportive” to being “appropriate and consistent with the outlook of continued price stability and sustainable economic growth.”
The central bank also removed earlier references suggesting headline inflation would remain moderate throughout 2026, while maintaining its assessment that both headline and core inflation remain contained.
Standard Chartered expects BNM to maintain an extended pause in interest rates, as stable domestic demand and existing government policy measures should help contain demand-driven inflation.
While domestic conditions remain supportive, Standard Chartered cautioned that renewed tensions involving the United States and Iran have increased uncertainty over the external inflation outlook.
Brent crude oil prices have recovered to around US$80 per barrel, reversing part of the earlier decline following the temporary easing in geopolitical tensions.
The research house said BNM is likely to remain attentive to imported cost pressures arising from higher global commodity prices, although it believes any pass-through to domestic inflation will remain manageable.
Investors will also closely watch BNM’s comments on the ringgit in its policy statement.
Standard Chartered noted that recent remarks by BNM’s Financial Markets Committee suggest the central bank is monitoring the pace of the ringgit’s depreciation but appears less concerned than during previous episodes in 2023 and 2024.
Rather than intervening aggressively, the research house expects BNM to continue smoothing excessive volatility while encouraging capital inflows.
It remains constructive on the medium-term outlook for the ringgit, supported by Malaysia’s resilient macroeconomic fundamentals, healthy external sector, continued strength in the E&E industry and sustained economic growth.
