KUALA LUMPUR (May 22): Bank Negara Malaysia (BNM) may cut interest rates in 2025 to support growth, even though inflation remained low at 1.4% in April. Inflation was mainly driven by higher costs in personal care, education and housing.

Most economists expect the cut to come later in the year, not in the July meeting.

UOB Global Economic & Market Research said the timing of a potential interest rate cut depends on upcoming economic data, trade talks and market sentiment, with three policy meetings remaining this year.

“BNM underscored that the latest statutory reserve requirement (SRR) cut was not an indication of an upcoming change in OPR, suggesting that a rate cut in July is not a given. Other factors that could sway sentiment include the US-China trade truce (until August 12), mitigating factors to shield Malaysia from the tariff effects, and ongoing negotiations to reduce US reciprocal tariffs,” it said in its note following the release of April inflation data.

The next policy meeting on July 8-9 also coincides with the end of the 90-day reciprocal tariff pause.

UOB has pencilled in two 25 basis points cuts for the year. It expects full-year inflation to come in at 2.3%, given lower commodity prices and softer demand making sure that RON95 subsidy rationalisation and domestic policy measures will have minimal impact on inflation. UOB expects inflation to average 2.3% this year.

Kenanga Research sees the central bank keeping the OPR at 3%, with a rate cut only happening if gross domestic product drops below 3.5% and heads towards a sequential quarter-on-quarter contraction. Until then, BNM is likely to remain on hold, preserving policy flexibility, it said.

It said Malaysia remains shielded from external price pressures, with inflation risks mainly domestic due to planned fuel and tariff hikes. Delaying these reforms, however, may hurt credibility and do more harm and good. Kenanga expects inflation to accelerate to 2.7% in 2025.

CIMB expects the central bank to cut interest rates by 25 basis points in the July meet due to dimming growth prospects. It said Malaysia’s economy grew by 4.4% in 1Q2025, down from 4.9% in 4Q2024 due to slower consumer spending and export growth. Manufacturing activity also remained weak, as shown by the continued contraction in the purchasing manager index, indicating ongoing challenges in the sector.

MIDF Research, in its note, said it expects Bank Negara Malaysia to keep interest rates at 3% for the entirety of 2025, as there is no strong demand-pull inflation pressure and the current rate supports steady economic growth. It expects inflation to average at 2.2%.