Malaysia Holds Interest Rates Steady Amid Solid Growth and Global Uncertainty

Malaysia’s central bank has opted to maintain its policy interest rate at 3%, balancing steady domestic economic performance with growing external risks, particularly from escalating global trade tensions and geopolitical uncertainty.

Malaysia holds rates steady as growth holds firm, but global risks loom.

Policy Pause Reflects Balanced Conditions

Bank Negara Malaysia (BNM) kept its Overnight Policy Rate unchanged during its May 8 meeting, pointing to sustained consumer demand, a rebound in industrial production, and favourable inflation levels. The central bank stated that the current rate aligns with its outlook for inflation and economic growth.

Domestic Strength Offsets Global Challenges

Malaysia’s economy continues to expand, driven by strong household spending and resilient exports, despite a more uncertain global environment. The central bank acknowledged that risks to the global outlook have increased due to trade tensions, especially rising U.S. tariffs, and geopolitical instability.

Growth Momentum Eases

While economic indicators remain broadly positive—Q1 growth is estimated at 4.4% and inflation fell to 1.4% in March—growth has moderated from earlier highs. Analysts warn that if global trade frictions intensify, GDP could dip below 4% in the coming quarter.

Industrial Sector Recovery Surpasses Forecasts

Industrial production rose 3.2% year-on-year in March, beating expectations, with notable recoveries in manufacturing and mining. However, both export- and domestic-oriented industries showed signs of slowing growth compared to the previous month.

Tariff Risks Cast Shadow Over Trade

Economists flagged U.S. tariff hikes—potentially set to increase from 10% to 24%—as a key risk to Malaysia’s manufacturing and export sectors. While some short-term gains may come from front-loading shipments, the broader impact of prolonged trade tensions could weigh heavily on export demand.

Inflation Remains Contained, Ringgit Strengthens

Headline and core inflation stayed low in Q1, averaging 1.5% and 1.9% respectively. BNM expects inflation to remain stable, supported by easing global cost pressures and limited domestic price drivers. Meanwhile, the ringgit has appreciated by 4.4% against the U.S. dollar this year, buoyed by improving investor sentiment and structural reforms.

Conclusion

Malaysia is maintaining a steady policy stance amid solid domestic conditions and rising global risks. Future rate decisions will depend on how external uncertainties, especially trade tensions, affect growth and inflation.