KUALA LUMPUR (Oct 22): Malaysia’s inflation rate is expected to remain mild and contained in 2025, with economists saying the impact of the Budi95 petrol subsidy retargeting and the broader Sales and Service Tax (SST) expansion is likely to be limited.
Given subdued inflation and resilient economic growth, they expect Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) unchanged at 2.75% at its final monetary policy meeting of the year in November.
The consumer price index (CPI) — the country’s main gauge of inflation — rose 1.5% year-on-year in September, up from 1.3% in August and slightly above the median forecast of 1.4% in a Bloomberg survey. Despite the uptick, headline inflation averaged 1.4% in the first nine months of 2025, remaining modest, according to UOB Global Economics & Markets Research.
According to its note on Wednesday (Oct 22), UOB projects inflation to average 1.4% in 2025 and 2% in 2026, compared with the Ministry of Finance’s forecast range of 1%–2% for 2025 and 1.3%–2% for 2026.
“With growth proving resilient and inflation staying moderate, we expect BNM to leave the OPR unchanged at 2.75% at its final meeting on Nov 5–6, following an expansionary budget aimed at sustaining GDP (gross domestic product) growth of 4% or more in 2026,” said the research house.
Similarly, CIMB Treasury and Markets Research maintained its headline inflation forecast at 1.5% in 2025 and 2% in 2026, underscoring continued price stability. The note said the full impact of the BUDI95 fuel subsidy change will be clearer in October 2025. However, it's expected to have little effect on inflation, as 99% of Malaysians are not affected by higher fuel prices.
With inflation risks remaining subdued, monetary policy retains room for manoeuvre entering 2026, allowing potential easing should non-electrical and electronic (E&E) exports continue to exhibit persistent weakness and external demand conditions deteriorate further, said the research house.
“On the supply side, well-contained price movements following subsidy rationalisation suggest limited inflationary risk. Meanwhile, on the demand side, particularly labour market metrics, point to some degree of tightness, indicating mild but manageable pressures,” it said.
Pantheon Macroeconomics likewise kept its 2025 inflation forecast at 1.4%, citing ongoing cost-push pressures from energy tariff restructuring and the expanded SST. It expects inflation to ease to 1.2% in 2026 and 1.1% in 2027, supported by weak oil prices. “Granted, headline inflation has been out-of-sync with the signal from oil prices recently, pointing to short-term upside risks,” it said.
In contrast, RHB Investment Bank took a slightly more dovish stance, trimming its 2025 inflation forecast slightly to 1.5% from 1.6%.
The research house cited lower-than-expected year-to-date inflation of 1.4% and potentially softer transport inflation following the reduction in RON95 retail prices and the absence of further tightening in the fuel subsidy retargeting. Transport costs make up 5.5% of the CPI basket, it noted.