KUALA LUMPUR (April 11): Malaysia’s central bank is more likely to consider cutting the statutory reserve requirement (SRR) than the overnight policy rate if global trade tensions worsen, said Nomura.

A reduction in the reserve ratio — the proportion of deposits that lenders have to set aside at Bank Negara Malaysia (BNM) — is plausible if the tightening liquidity is affected further by capital outflows due to US sweeping tariffs, the Japanese investment bank said in a note.

“If global trade tensions worsen, instead of a policy rate cut, we think BNM is more likely to consider an SRR cut to boost liquidity conditions,” Nomura said.

The SRR is currently at 2.0% after it was cut at the onset of the Covid-19 pandemic in March 2020 to ensure banks had sufficient liquidity to weather the crisis. The central bank previously stressed that the SRR is an instrument to manage liquidity and should not be taken as a monetary policy signal.

BNM maintained the policy rate at 3.00% during its latest review in March, drawing comfort from resilient growth and benign inflation even as trade tensions simmered. The next monetary policy review is scheduled for May but the rate has remained unchanged since May 2020.

“Given rising external headwinds to growth, we now expect BNM to leave its overnight policy rate unchanged at 3.0% this year” instead of raising it by 25 basis points in the final quarter of 2025, Nomura said.

Malaysia appears “relatively resilient” for now even with its export-oriented economy, the investment bank said. “We see the tariff impact on growth as limited due to still-resilient domestic demand from a sustained investment upcycle,” it said.

Malaysia’s economy will likely expand 5.2% in 2025 instead of 5.4%, according to Nomura’s latest forecast, which reflects the impact of rising global trade tensions and US reciprocal tariffs on export growth from July onwards.

Nomura’s forecast is still close to the top-end of the government’s forecast of 4.5%-5.5%. “We think domestic demand will remain resilient, driven by sustained investment spending, given the government’s implementation of reforms and more progress on infrastructure projects,” it said.

In the longer-term, supply-chain reorientation as well as the establishment of the Johor-Singapore Economic Zone will likely provide a boost while private consumption growth will also likely remain robust, helped by upward wage adjustments and low unemployment rate, Nomura added.