BNM Holds Steady After First Cut in Two Years, Caution Prevails – Octa Broker

Following the previous rate cut in July 2025, the rate remained on hold, 2.75%, as expected by the majority of market analysts. Octa broker explains that such a decision is driven by continued expansion in global growth, as well as sustained consumer spending. At the same time, the previous cut should still filter through the economy amid global uncertainty.

The Malaysian central bank, Bank Negara Malaysia (BNM), announced its interest rate decision this Thursday. The major monetary policy instrument, the Overnight Policy Rate (OPR), affects economic interest rates, including borrowing costs for consumers and businesses, overall economic activity, and inflation.

Unlike regional central banks, the BNM paused ORM changes for two years, starting in May 2023. During the last policy meeting in July 2025, Bank Negara Malaysia lowered the benchmark interest rate by 25 basis points, from 3.0% to 2.75%. The decision was driven by the BNM’s commitment to supporting economic growth amid global uncertainty stemming from external developments.

During the latest meeting, the BNM kept the interest rate at 2.75%. The direction can be sustained until mid-2026, adopting a prudent stance amidst ongoing global economic uncertainties. The 25 July OPR cut indicates Bank Negara Malaysia’s aggressive action in upholding economic stability amidst external threats such as possible U.S. tariff imposition and Malaysia’s record trade agreements.

While such uncertainties have adverse risks of expansion, recent strong economic growth gives some room for manoeuvre to the central bank. For example, in Q2 2025, the Malaysian economy maintained its growth momentum since the previous quarter and expanded by 4.4%, with robust domestic demand being the major driver, according to the BNM data. Both private and public investments recorded strong expansion. The Industrial Production Index (IPI) registered a good 3.0% increase in June, after 0.3% in May 2025, led by better performance by the manufacturing and electricity sectors, according to the Department of Statistics Malaysia (DOSM).

Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin attributed the growth to robust manufacturing production, which expanded 3.6%, led by the domestic-driven industries, while there was also a 4.1% rebound in the electricity sector. Furthermore, Malaysia’s exports in July rose 6.8% year-on-year, significantly exceeding the projected 3.9% decline, driven by high demand for electrical and electronics items. The Q2 2025 export performance is relatively moderate, with a 2.6% increase, compared to 4.1% in Q1 2025.

Overall, the Malaysian GDP has shown some resilience over the past two years. Since the beginning of 2024, minimal economic growth equalled 4.2%, which was announced in Q1 2024. The next quarter, Q2 2024, the 2-year record, 5.9%, was reported. After that, the growth dynamics steadily decreased yet remained on a decent level—above 4.4%.

‘The recent economic resilience amid global uncertainty provides BNM with room to pause and assess their previous decision. Policymakers need to observe the full impact of July’s 25-basis-point cut before considering any further action, as that adjustment should filter through the economy. While the base case remains for rates to hold at 2.75%, a minor reduction—similar to the previous cut—wasn’t entirely ruled out if the Federal Reserve moved ahead with its anticipated easing in September, given the influence U.S. policy has on Malaysia’s monetary decisions’, notes Kar Yong Ang, a financial market analyst at Octa broker.

Despite the recent ringgit (MYR) rally starting in April 2025, when the MYR price significantly rebounded against the U.S. dollar, the USDMYR remains in a structural bullish trend in the long term. Yet, ringgit may regain its upward momentum in the short term, with USDMYR potentially testing 4.19 on the back of sustained foreign bond inflows, fiscal consolidation measures, and prospects of further BNM easing amid contained inflation. Additional support comes from expectations of a dovish Fed and a softer USD, which could attract further demand for Malaysian assets.

‘Since the long-term bullish trend in USDMYR—intact since 2018—remains in play, the upside appears limited beyond 4.19. Medium term, the pair is likely to trade within a 4.19–4.26 range, while any move above 4.27 could extend the bullish trajectory toward 4.36. Downside risks for the ringgit stem from lingering global trade volatility despite tariff relief, which could cap sustained appreciation’, adds Kar Yong Ang.

Tariff-related risks and external demand volatility may weigh on Malaysia’s growth outlook, regardless of the recent tariff rate reduction to 19% from a threatened 25%. The BNM is expected to remain cautious, balancing moderate inflation and sustainable economic growth amid global uncertainties.

Disclaimer: This article does not contain or constitute investment advice or recommendations and does not consider your investment objectives, financial situation, or needs. Any actions taken based on this content are at your sole discretion and risk—Octa does not accept any liability for any resulting losses or consequences.

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