• The continued monetary policy stance is unlike other countries in the region, which have started to cut rates in recent weeks, noted London-based economic research firm Capital Economics. One of the reasons for this, it said, is the strength of Malaysia's economy.

KUALA LUMPUR (Nov 6): Following Bank Negara Malaysia's (BNM) decision on Wednesday to maintain the overnight policy rate (OPR) at 3%, which marks 18 months of rate pause, economists expect the central bank to leave the benchmark interest rate unchanged throughout 2025 as well.

All five economists polled by The Edge forecasts that BNM will stand pat on the key rate for at least another 12 months. 

BNM on Wednesday continued to leave the OPR unchanged, following the Monetary Policy Committee’s (MPC) final meeting of the year, which aligned with expectations from economists surveyed by Bloomberg.

This marks the ninth consecutive MPC meeting where the OPR was kept at 3%, after being raised by 25 basis points from 2.75% in May last year.

The continued monetary policy stance is unlike other countries in the region, which have started to cut rates in recent weeks, noted London-based economic research firm Capital Economics. One of the reasons for this, it said, is the strength of Malaysia's economy.

"Gross domestic product [GDP] grew by 5.3% year-on-year [y-o-y] in 3Q, marking the third consecutive quarter of above-trend growth. If the economy expands by a healthy 5% in 2025, as we expect, then the central bank is unlikely to provide additional support," it said in a note.

Australia and New Zealand Banking Group (ANZ) also does not see any case for a rate cut by BNM in 2025, even with the ongoing global monetary easing cycle, "considering Malaysia's stable inflation and growth outlook."

"The current monetary policy settings are considered to be supportive of growth," it said.

OCBC Global Markets Research, however, did not entirely dismiss the possibility of a rate hike in 2025 due to several inflationary policies in the pipeline, such as the RON95 subsidy rationalisation, which is expected to be implemented in the second half of the year.

"Our baseline is for BNM to keep its policy rate unchanged at 3% in 2025. However, we expect BNM to remain vigilant of second-round inflationary pressures, and do not rule out the possibility of a rate hike in the second half of 2025 should inflationary pressures become more pervasive," it said.

If the subsidy rationalisation is implemented as outlined in Budget 2025, OCBC estimates that retail prices could rise by 20% to 25% from July 2025, pushing its estimate of average inflation higher to 2.6-2.8% year-on-year in 2025. 

"The caveat, however, is [that] the mechanism of implementation is unclear given that the subsidy removal will be targeted to a certain section of consumers," it added.

RHB Investment Bank, which has an inflation projection of 2.7% in 2025, argued that upsides to inflation may be limited if only 15% of the income group is affected by the subsidy retargeting initiatives, as the remaining 85% of the population should not experience significant increases in living costs.

"The wide official inflation range of 2% to 3.5% in 2025 should provide sufficient room for future price movements amid domestic policy changes and commodity price fluctuations," it said.

The MPC is set to meet again next year on Jan 22.

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