(April 9): Malaysia’s central bank is looking beyond monetary policy to weather the fallout from US President Donald Trump’s duties, arguing that the country is entering the tariff disputes from a position of strength.

Strong investment activity, resilient domestic demand and diversified trade partners will help support the economy, Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour said in a Bloomberg TV interview with Avril Hong. Policymakers also have numerous policy tools to mitigate the impact of sweeping US levies, he added.

“Monetary policy cannot resolve trade wars. It’s not the best tool to do it,” Abdul Rasheed said on Wednesday. “What’s important for us is what’s the mandate that we want. We want to achieve price stability that provides sustainable economic growth to the country.”

Traders are pricing in a 25-basis-point reduction in BNM’s policy rate within the next six months, according to swaps data compiled by Bloomberg, as US tariffs raise concerns over slower growth. Economists have lowered their 2025 growth forecasts for Malaysia, which faces a 24% levy.

The central bank has kept the benchmark rate at 3% since May 2023 after a year-long tightening cycle. The top executive of Malaysia’s largest lender Malayan Banking Bhd (KL:MAYBANK), Datuk Khairussaleh Ramli, said in a separate interview there is room for a 25-basis-point cut.

Abdul Rasheed said the central bank expects continued ringgit volatility and that it is ready to curb any excessive fluctuation. Any currency intervention is done judiciously to ensure an orderly market, he said.

Authorities are assessing the impact of the US tariffs and have put this year’s economic growth forecast of 4.5%-5.5% under review. There are signs that growth may be slowing, with January industrial production coming in below analyst forecasts.

While the central bank is reviewing the growth forecast, “we’re not in a rush to change it now because things are still very much fluid”, Abdul Rasheed said.

It’s more important that the government “doubles down” on structural reforms to further strengthen the economy and provide enduring support for the ringgit, he added.

Malaysia is preparing to raise petrol prices for the country’s wealthiest 15% this year as it seeks to reduce subsidies on its most popular gasoline, known as RON95. The central bank has maintained that its impact on inflation will remain contained, and sees consumer prices rising 2%-3.5% this year.

Efforts to encourage state-linked firms and investment funds to repatriate foreign investment income and convert it into the local currency will continue, he added, which will buoy the ringgit. The central bank also regularly engages with exporters and importers to encourage them to manage their foreign-exchange activities prudently, including converting their export proceeds into ringgit in a more timely manner.

The ringgit — which was the top performer across emerging market currencies in 2024 — has weakened along with developing economy peers this month.

Prime Minister Datuk Seri Anwar Ibrahim said over the weekend that Malaysia will lead efforts to coordinate a regional response by Southeast Asia towards US tariffs. Malaysia is the current chair of the Association of Southeast Asian Nations group of 10 countries.

The region was hard hit by the so-called reciprocal tariffs rolled out by Trump last week, though they vary depending on each country’s trade relationship with the US. Malaysia faces a 24% levy; US tariffs on Indonesia were set at 32%; and Vietnam exports will be charged at 46%. The US tariff on Singapore was set at 10%, while the levy for the Philippines will be 17%.

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