Malaysia's Central Bank Expected to Lower Interest Rates Amid Economic Concerns

Strategic Insights -

Malaysia's central bank, Bank Negara Malaysia (BNM), is likely to lower the Overnight Policy Rate (OPR) in the second half of 2025, according to investment banks, as the country struggles with softer first-quarter growth and trade disruptions. The potential interest rate cut comes as the country's economy faces external uncertainties, including the looming tariff suspension and its impact on trade performance and investment activity. While some banks expect a more front-loaded policy response if the tariff suspension lapses, others anticipate a data-dependent stance from BNM. Meanwhile, Standard Chartered has lowered its 2025 gross domestic growth (GDP) forecast to 4.2% from 5.0% previously due to weaker-than-expected first-quarter GDP growth and tariff disruptions.

Key Takeaways:

  • Investment banks, including Public Investment Bank Bhd and Hong Leong Investment Bank, expect BNM to lower the OPR by 25 basis points (bps) in the second half of 2025.
  • The Statutory Reserve Requirement (SRR) reduction by 100 bps is expected to provide a liquidity buffer for BNM to maintain a data-dependent stance amid elevated external volatility.
  • Standard Chartered lowered its 2025 GDP growth forecast to 4.2% from 5.0% previously due to weaker-than-expected first-quarter GDP growth and tariff disruptions.
  • The bank estimates that a 24% and 10% reciprocal tariff rate will subtract 0.7 percentage point (ppt) and 0.4 ppt, respectively, from GDP.
  • The hit to GDP from a fall in demand of trading partners will also likely weigh on growth in 2025.
  • Consumer spending and investment are likely to remain the key pillars of growth in 2025.

Statistics:

  • Investment banks expect BNM to lower the OPR by 25 bps in the second half of 2025.
  • The SRR reduction by 100 bps is expected to provide a liquidity buffer for BNM.
  • Standard Chartered lowered its 2025 GDP growth forecast to 4.2% from 5.0% previously.
  • 24% and 10% reciprocal tariff rate will subtract 0.7 ppt and 0.4 ppt, respectively, from GDP.
  • Consumer spending and investment are expected to contribute to the economy in 2025.

Sources:

  • Public Investment Bank Bhd [no date]
  • Hong Leong Investment Bank [no date]
  • Standard Chartered [no date]