KUALA LUMPUR, July 9 — Bank Negara Malaysia’s (BNM) decision to cut the Overnight Policy Rate (OPR) by 25 basis points to 2.75 per cent is a proactive stance to stimulate business activity, sustain domestic demand, bolster growth and maintain Malaysia’s economic resilience.
The cut in rates, which would increase disposable income, has been described by economists as a pragmatic move given concerns over potential risks from higher United States (US) tariffs.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the primary focus now is to promote growth, and the moderation in the inflation rate has opened up the space for BNM to reduce the OPR.
“The preemptive cut should provide a boost to confidence, which can be positive to growth. We believe that the rate cut was a good move as BNM is cognizant of the associated risks in the evolving economic outlook.
“It also demonstrates that the central bank is on top of the game, which can translate into market confidence,” he told Bernama.
Afzanizam added that the OPR reduction would effectively help reduce the cost of borrowings among existing bank customers, whether individuals or businesses, especially those who take variable-rate financing.
“With this, their repayment amount will be reduced and improve disposable income. For potential borrowers, they can shop around and get competitive financing rates. All this will help to sustain domestic demand,” he said.
Regarding the ringgit’s performance, which is mainly influenced by external factors and its relation to the OPR cut, Afzanizam said that traders and investors will assess the situation, including global uncertainties, holistically.
Based on macroeconomic conditions, Malaysia has exhibited a favourable trend, with fiscal deficits narrowing to 4.5 per cent of gross domestic product (GDP) in the first quarter of 2025 (1Q 2025) compared to 5.7 per cent in 1Q 2024.
“This indicates that the government is on track to reduce the fiscal deficits in 2025 to 3.8 per cent of GDP from 4.1 per cent in 2024. This is positive from the standpoint of credit rating agencies (CRAs).
“On that note, the ringgit has the potential to appreciate further as the government remains committed to implementing the economic reforms,” he said.
Additionally, in the second half of 2025 (2H 2025), the expansion of the Sales and Service Tax (SST) scope, electricity tariff revision, and rationalisation of the RON95 subsidies would translate into a better fiscal position for the Federal government.
“All this (2H 2025, SST, electricity tariff, and RON95) would translate into a strong ringgit,” Afzanizam said.
Meanwhile, Juwai IQI global chief economist Shan Saeed said BNM’s OPR cut to 2.75 per cent represents a tactical pivot towards accommodative policy, signalling its intent to buttress domestic demand amidst global headwinds.
“With 1Q GDP growth moderating to 4.4 per cent and trade softening — partly due to escalating US tariffs — this preemptive easing aims to enhance liquidity, stimulate consumption and shore up private investment.
“By lowering the OPR corridor and having already trimmed the statutory reserve requirement, BNM is targeting a sustainable growth trajectory, especially as inflation remains benign at around 1.2 per cent, well below target ceilings,” he said.
From a macroeconomic standpoint, the rate adjustment is likely to provide tailwinds to domestic sentiment and credit growth.
Shan also noted GDP forecasts, initially targeting a range of 4.5 to 5.5 per cent for this year, are now likely to grow between 4.7 and 5.3 per cent.
“The easing cycle could support a more resilient rebound later,” he said.
Regarding the ringgit’s performance, Shan said the move might temper appreciation pressures, aligning with BNM’s aim to achieve a balanced foreign exchange stance.
“That said, continued global uncertainties, particularly around trade tensions, will be key drivers of foreign exchange volatility and may overshadow the currency effect of local easing,” he said.
Therefore, he expects BNM to maintain structural stability in the ringgit, with a range of 4.10 to 4.30 against the US dollar in 2025.
— Bernama
