MPC Pre-emptively Cuts OPR To Preserve Steady Growth Path - BNM Governor
KUALA LUMPUR, July 9 (Bernama) -- Following is the transcript of Bernama’s email interview with Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour on the Overnight Policy Rate (OPR).
Q1. Governor, can you guide us through the Monetary Policy Committee’s (MPC) decision on the Overnight Policy Rate (OPR) today?
The MPC’s decision is always guided by our mandate to maintain price stability conducive to sustainable growth, premised on the outlook of Malaysia’s growth and inflation. The Malaysian economy is on a strong footing, given our strong underlying economic fundamentals.
At today’s meeting, the MPC acknowledged that uncertainties surrounding trade and geopolitical developments risk affecting Malaysia’s economic outlook. At the same time, inflation is expected to remain moderate, amid contained global cost conditions and the absence of excessive domestic demand pressures.
Taking these together, reducing the OPR by 25 basis points is a pre-emptive move aimed at preserving and securing our steady growth path.
Q2. Is the OPR cut due to the recent announcement on the United States tariffs? How is the economy performing now, and where is it headed?
No, the negotiations with the US are progressing. Malaysia’s economy is on a strong footing, and the OPR cut is to preserve and secure our steady growth path. The latest data shows that our economy continued to expand in the second quarter, underpinned by sustained domestic demand and export growth.
Looking ahead, we expect domestic demand to continue being our key driver of growth. Employment and wage growth, particularly within domestic-oriented sectors, alongside income-related policy measures, will support household spending. The latter includes the salary increment for civil servants and a higher minimum wage.
In addition, lower borrowing costs and loan repayments from the OPR cut will also help households and businesses. Investment activity will continue to expand, as multi-year projects across both the private and public sectors move forward. The continued high realisation of approved investments, together with the ongoing implementation of key initiatives under national master plans, will also provide support.
Favourable trade negotiation outcomes, pro-growth policies in major economies, continued demand for our electrical and electronic (E&E) goods, and robust tourist spending could raise Malaysia’s exports. The continued progress in our trade negotiations with the US will further support our exports. However, the balance of risks to Malaysia’s growth outlook remains tilted to the downside, stemming mainly from slower global trade, weaker sentiment, and lower-than-expected commodity production.
To reflect the latest assessment I shared above, we plan to release the revised gross domestic product (GDP) growth forecast for 2025 in the fourth week of July. I would like to emphasise that we do not foresee a major revision. The updated figures will take into account the latest economic indicators and developments surrounding trade negotiations.
Q3. What is the MPC’s outlook for inflation, taking into consideration the most recent Sales and Service Tax (SST) expansion, fluctuations in global oil prices, and upcoming electricity tariffs?
Headline and core inflation averaged 1.4 per cent and 1.9 per cent in the first five months of this year. Overall, inflation is expected to remain moderate in 2025, amid contained global cost conditions and the absence of excessive domestic demand pressures. Inflationary pressure from global commodity prices is expected to remain limited, contributing to moderate domestic cost conditions.
In this environment, the overall impact of previously announced and upcoming domestic policy reforms on inflation is expected to be contained. The updated inflation forecast for 2025 will be announced together with the GDP growth forecast.
Q4. Following today’s decision, can we expect another OPR cut this year?
I understand that this question is on everyone’s minds right now. Let me preface by saying that our monetary policy decisions remain guided by the MPC’s assessment of Malaysia’s outlook for growth and inflation.
The MPC sees today’s decision as a pre-emptive cut to preserve a steady economic growth path in the face of global uncertainties. The MPC is not on any pre-set course. Future policy decisions will continue to be guided by the evolving outlook for domestic growth and inflation.
Q5. With global uncertainties rising and downside risks to domestic growth, what can Malaysians look to as sources of strength in the economy right now?
This is a very timely and important question. Thank you for raising it. Amidst ongoing global uncertainties, our focus on implementing structural reforms remains an important source of strength. Our reforms are essential to enhance the economy’s resilience and raise the well-being of the rakyat. Indeed, our strong economic fundamentals today are the fruits of our labour from previous years of work.
The recent SST adjustment and the upcoming rationalisation of RON95 fuel subsidies are part of this broader reform agenda to rebuild fiscal space and improve public spending efficiency. This is important so that the government can continue to support our economy effectively when needed.
Just like any reforms, they will entail some short-term adjustments. But they are necessary, and a targeted rollout, alongside supportive measures including widened exemptions, will help ease the transition and limit their impact on overall inflation.
Another source of strength lies in the continued implementation of our national strategies, such as Malaysia’s New Industrial Master Plan and the National Energy Transition Roadmap, that support quality investments and productivity growth.
While some moderation, particularly among export-oriented firms, is expected, Malaysia’s investment activity remains sustained, particularly within domestic-focused sectors, such as infrastructure, construction-related materials and the green economy. Indeed, Malaysia’s strong economic fundamentals, well-established business ecosystem and facilitative government policies ensure that it remains an attractive investment destination for global investors.
-- BERNAMA