With a possible back to back Fed hike, the big question among analyst in Malaysia is would Bank Negara Malaysia make a move in adjusting the OPR this year or wait.
According to Kenanga Research, the house opines that BNM would keep the Overnight Policy Rate (OPR) unchanged at 2.75% at its Nov 5 meeting before delivering a single 25-basis-point increase to 3.00% in the first quarter of 2027.
The research house views the potential move as a normalisation rather than the start of a monetary tightening cycle, arguing that the pre-emptive rate cut implemented in July 2025 has served its purpose as economic growth has remained resilient.
Malaysia’s economy expanded 5.7% in the first half of 2026, including growth of 6.0% in the second quarter and 5.4% in the first, while headline inflation stood at 1.9% and core inflation at 1.7% in August.
Kenanga said neither inflation nor financial imbalances currently provide a compelling reason for higher rates, describing the case for a hike as one of having the “permission” to normalise policy rather than being under pressure to tighten.
Household Debt High But Stable
The research house also sees little evidence that household leverage is building into a financial imbalance.
Household debt stood at RM1.73 trillion, or 84.4% of GDP, at end-1Q26, while debt grew 5.6% in 2025, broadly in line with its pre-pandemic average.
Residential property accounted for 61.2% of household debt, followed by vehicle financing at 13.9% and personal financing at 12.0%. Kenanga noted that household financial assets were equivalent to 2.1 times debt at end-2025, while the median debt-service ratio remained at 33%.
It said the economy is effectively outgrowing its debt, with nominal GDP expanding 8.5% in 1H26 compared with household loan growth of 5.3%.
Fed Alters Timing, Not BNM’s Mandate
Kenanga said its change in rate outlook was driven largely by developments in US monetary policy rather than a fundamental shift in BNM’s domestic mandate.
The research house expects another 25-basis-point Federal Reserve rate increase in the fourth quarter of 2026 after the Fed raised rates to 3.75%-4.00% in September.
It argued that US rates matter principally through their impact on the ringgit, portfolio flows and imported costs, noting that BNM has previously tolerated substantial interest-rate differentials with the Fed.
Kenanga’s quantitative model puts the probability of a BNM hike by end-1Q27 at 80%, although its economists assign a lower 55% probability because BNM has yet to signal concerns over financial imbalances.
The house view is for one hike to 3.00% followed by an extended pause, with Kenanga estimating a 15% probability of a move in November, 55% by end-1Q27 and 75% by end-2Q27.
Kenanga also raised its end-2026 US dollar-ringgit forecast to 4.00 from 3.95, saying another Fed hike could slow, but not reverse, the ringgit’s appreciation trend. It maintained its end-2026 forecast for the 10-year Malaysian Government Securities yield at 3.88%.
