OPR Aligns With Malaysia's Economic Prospects — BNM Governor
KUALA LUMPUR, March 6 (Bernama) -- The following is an interview with Bank Negara Malaysia Governor Datuk Seri Abdul Rasheed Ghaffour following March’s Monetary Policy Committee meeting:
1. What was the Monetary Policy Committee’s (MPC) decision on the Overnight Policy Rate (OPR) today?
Answer: We have decided to maintain the OPR at 3.0 per cent. This is consistent with our assessment of the prospects of Malaysia’s economy, which is seeing resilient growth and stable inflation.
2. Why has the MPC kept the OPR unchanged at 3.0 per cent for this round? How does BNM view the domestic growth and inflation outlook?
Answer: The MPC aims to maintain price stability conducive to sustainable economic growth. To do so, we look at the trajectory of Malaysia’s inflation and economic growth over the next one to two years when setting the OPR.
Let’s start with growth. Despite challenges in the global economy, Malaysia’s economy performed well, expanding by 5.1 per cent in 2024. Moving forward, we expect sustained domestic spending to continue to drive growth.
In particular, household spending will be supported by positive labour market conditions and policy support. These include salary increases for civil servants and higher minimum wage that came into effect on Feb 1, this year.
Beyond household spending, investments remain a bright spot for our economy. The private sector continues to invest, particularly in key sectors such as electrical and electronics (E&E), automotive, food and beverage (F&B) and real estate.
Very importantly, the robust investment activity will help expand Malaysia’s productive capacity. This allows our economy to produce more goods and services over time to meet future demand for both domestic and external markets, without generating excessive price pressures.
While exports are expected to expand at a more moderate pace amid global uncertainties, they will continue to be supported by the global technology upcycle, continued growth in our non-E&E sectors, and higher tourist spending. The projected growth in tourist spending, in particular, will be bolstered by improving global travel demand and increased flight connectivity. Now, let me turn to inflation.
Inflation is expected to remain manageable in 2025. We expect demand pressures to also stay moderate. Importantly, global cost conditions are easing. This is driven by factors such as lower energy, food and agricultural commodity prices.
Several domestic policy reforms are expected to take place this year. They include the Sales and Services Tax (SST) expansion and the RON95 subsidy rationalisation. We continue to assess their impact on inflation but expect it to be contained. Let me explain why.
The planned adjustments to SST will mainly impact nonessential food and durable products that make up a small portion of Malaysia’s consumer price index basket, which headline inflation is based on. As for the RON95 subsidy rationalisation, the targeted approach is intended to minimise the impact on the cost of living.
As you may have seen in the news, trade policy uncertainties and geopolitical developments continue to unfold on the external front. Malaysia is a small and open economy. So naturally, we will consider the developments on the global stage, including global economic growth, trade, cost conditions, geopolitical events and how these might impact us.
The MPC is following these developments closely and remains vigilant against potential spillover effects to the domestic economy as we continue to maintain an environment of price stability conducive to Malaysia’s sustainable growth.
Given Malaysia’s current prospects, we have decided to maintain the OPR at 3.0 per cent, where it will continue to be supportive of the economy. Credit conditions also remain supportive of household and business financing needs as Malaysia’s economy continues to expand.
3. Speaking of external developments, how well is Malaysia positioned to face global trade uncertainties arising from President Trump’s second term in office?
Answer: This is a timely question. I understand many are concerned about these global uncertainties and how they will impact our economy. These are key developments that the MPC must also consider as part of our decision-making process.
We are continuously assessing the impact of global events on Malaysia’s growth and inflation trajectory, given the uncertainty surrounding global trade policies. As a small open economy, Malaysia will not be totally insulated from events that would affect global trade and growth.
That being said, our assessment is that Malaysia’s economy will remain resilient despite these external uncertainties. Growth will primarily be anchored by the sustained strength in domestic demand. Malaysia’s diversified economy and broad export base will serve to cushion any impact from external shocks.
We have several growth engines, and the economy is not dependent on any single source of growth. For instance, while we are a trading nation with a strong contribution from manufacturing activities, our services sector is also significant and accounts for more than half of our total economy.
We also have a diversified export structure. This helps us cushion against external challenges. Our diverse export products and trading partners ensure that we are not overly reliant on any single product or market. In 2024, for example, while 40 per cent of our total exports were E&E products, the remaining 60 per cent cuts across a variety of non-E&E manufactured goods as well as agriculture and mineral products.
We maintain a diversified trade network across multiple countries and regions. In navigating global trade uncertainties, Malaysia continues to actively pursue emerging opportunities and foster growth by strengthening trade with regional partners such as the ASEAN bloc.
Pursuing greater regional integration with other ASEAN countries is vital to further enhance our trade prospects, given that ASEAN remains one of Malaysia’s top trading partners. This also underscores the importance of Malaysia’s ongoing structural reforms to bolster our economic fundamentals.
The government's active role in facilitating key investments and boosting industrial capabilities under national masterplans will further fortify Malaysia’s resilience. All these factors – Malaysia’s favourable economic prospects, domestic structural reforms along with ongoing initiatives to encourage flows – will provide support to the ringgit and weather against heightened market volatility moving forward.
I am only scratching the surface with what I have shared so far but if you are keen to read more about BNM’s thoughts on this topic, do check out our upcoming Annual Report and Economic and Monetary Review publications due to be published on March 24.
-- BERNAMA
