Bank Negara Malaysia’s (BNM) decision to keep the Overnight Policy Rate (OPR) unchanged at 2.75% came with subtle but important changes in tone that point towards a potential rate increase in early 2027, according to OCBC Global Markets Research.
OCBC maintained its forecast that BNM will normalise the OPR to 3.00% in January 2027, after the central bank left rates unchanged at its Sept 3 Monetary Policy Committee (MPC) meeting, in line with consensus expectations.
Senior ASEAN Economist Lavanya Venkateswaran said changes to BNM’s policy statement indicated greater confidence in Malaysia’s growth outlook into 2027 while signalling increased vigilance over inflation and cost pressures.
OCBC characterised the overall assessment at the September meeting as having a modest hawkish bias, although it expects BNM to remain measured in adjusting rates.
One of the notable changes was BNM’s assessment of the external environment.
Despite uncertainties surrounding the Middle East conflict and continued inflationary pressures, the central bank expects the impact on global growth to be cushioned by sustained technology-related spending.
OCBC also observed that BNM’s assessment of Malaysia’s domestic economy was more positive and forward-looking than at its July meeting.
BNM said the economy’s sound fundamentals were expected to keep growth resilient in 2027, supported by electrical and electronics exports and resilient domestic demand.
At the same time, the central bank indicated that a close-to-neutral or marginally positive output gap was not necessarily strong enough on its own to warrant monetary policy intervention.
BNM also assessed that any fiscal slippage in 2026 would likely be limited and manageable, without requiring a monetary policy response.
The more significant shift, according to OCBC, was BNM’s language surrounding inflation.
With developments in the Middle East remaining fluid, the MPC said it would remain vigilant towards cost pressures and domestic demand conditions given their implications for inflation.
OCBC viewed this as a shift from BNM’s previously more sanguine assessment of price pressures.
The central bank also assessed that a potential disruption in the Strait of Hormuz was unlikely to cause outright supply shortages but could push energy prices higher.
Still, there were mitigating factors.
BNM noted that the spillover from strong export growth into domestic wages had remained limited despite supportive labour market conditions and a strong labour force participation rate. This reduces the risk of a wage-price spiral.
Cost pass-through has also remained uneven and largely concentrated at the front end of the cost structure.
OCBC highlighted another significant change in the wording of BNM’s monetary policy statement — the removal of the word “appropriate” when describing the prevailing policy stance.
The MPC instead said it considered the monetary policy stance to be “consistent with the outlook of continued price stability and sustainable economic growth.”
During an engagement session following the decision, BNM indicated that removing “appropriate” was deliberate and intended to give the MPC full flexibility in conducting monetary policy, particularly when monitoring cost and price pressures.
OCBC interpreted the change as another indication that room for policy normalisation is beginning to emerge.
Despite the more hawkish elements in BNM’s communication, OCBC said the post-meeting engagement struck a somewhat more balanced tone.
Incoming economic data — particularly inflation readings — will remain critical in determining whether conditions are sufficient for BNM to begin normalising monetary policy.
OCBC believes the case for a rate increase will take time to become evident in the data, making an immediate move unlikely.
“BNM has historically been measured in its policy rate adjustments in either direction, and we expect this time will be no different,” the research house said.
It therefore maintained its baseline forecast for BNM to raise the OPR by 25 basis points to 3.00% in January 2027, with the September policy communication suggesting the balance of risks is gradually shifting towards eventual monetary policy normalisation.
