KUALA LUMPUR (Jan 14): Malaysia may be forced to raise its interest rates this year as strong economic growth may add fuel to the inflation fire from impending subsidy rationalisation, Nomura Global Markets Research.
Inflation could be closer to 4% in 2025, according to Nomura’s Asean chief economist Euben Paracuelles, versus the government’s official forecast of 2.0%-3.5%. Malaysia’s economy could grow faster than expected fuelled by strong consumer spending and surging investments, he noted.
Paracuelles estimates that retail RON95 prices could potentially increase by 10% to 15%. The retail price for RON95 has been capped at RM2.05 since 2021.
Bank Negara Malaysia may raise the benchmark overnight policy rate by 25 basis points to 3.25% in the second quarter, he predicted.
The central bank has maintained the overnight policy rate, or OPR, at 3% since May 2023.
GDP to grow 5.7%
Paracuelles expects Malaysia’s gross domestic product (GDP) to grow by 5.7% this year, exceeding official forecasts of 4.5% to 5.5%.
“Malaysia stands out on all fronts — consumer spending is strong, wage growth is picking up, and investments have been surging, particularly in tech and AI (artificial intelligence), and the data construction boom has been ongoing for a year or so,” said Paracuelles at the Nomura Asean Conference 2025 on Tuesday.
The country’s success in attracting foreign direct investment (FDI) has been a significant driver of growth.
Paracuelles said the Johor-Singapore Special Economic Zone (JS-SEZ) is a “game changer” that positions Malaysia as an attractive destination for FDI, and sets the stage for long-term productivity improvements.
On that note, he estimates that Malaysia’s medium-term economic growth potential could reach around 5.4% to 5.5% over the next five years.