Kenanga Research expects Bank Negara Malaysia (BNM) to raise the Overnight Policy Rate (OPR) once to 3.00% in the first quarter of 2027, describing the move as a normalisation of monetary policy rather than the start of a tightening cycle.
The research house expects BNM to keep the OPR unchanged at 2.75% at its Nov 5 meeting, before delivering a 25-basis-point increase in 1Q27 and maintaining the rate thereafter.
Kenanga said Malaysia’s economic growth of 5.7% in 1H26 has moved beyond the conditions that prompted BNM’s “insurance” rate cut in July 2025, while core inflation eased to 1.7% in August.
“Financial conditions give no reason to rush,” it said, noting that banks remain well capitalised and liquid, household debt is growing more slowly than nominal gross domestic product and stress arising from the West Asia conflict remains concentrated among pockets of small and medium enterprises.
The monetary policy outlook came as BNM’s international reserves declined for a third consecutive month, falling US$200 million or 0.2% month-on-month to US$131.8 billion as at Sept 30, 2026.
Kenanga attributed the decline mainly to quarter-end foreign exchange revaluation losses.
Foreign currency reserves fell US$400 million, or 0.3%, to US$116.2 billion, while gold holdings increased US$200 million, or 3.8%, to US$6 billion, reflecting higher gold prices during the quarter.
In ringgit terms, however, total reserves rose RM3 billion or 0.6% month-on-month to RM537.7 billion, the highest level in 25 months.
Net reserves, which lag headline reserves by one month, increased to US$97.8 billion in August from US$96.9 billion in July, while net foreign currency reserves rose to US$82.4 billion from US$81.6 billion.
On the currency front, Kenanga said the ringgit weakened marginally in September, averaging RM4.07 against the US dollar from RM4.06 in August, amid a stronger greenback and more hawkish US Federal Reserve expectations.
The house has consequently revised its end-2026 USD/MYR forecast to 4.00 from 3.95.
Kenanga expects another US rate increase in 4Q26 to slow, rather than reverse, the ringgit’s appreciation. It said Malaysia’s external fundamentals remain supportive, pointing to a current account surplus equivalent to 2% of GDP in the four quarters to 2Q26 and a RM198.7 billion trade surplus in the first eight months of 2026.
It added that the ringgit could still strengthen towards 3.95 if the Federal Reserve ends its rate-hiking cycle after September’s increase.
