KUALA LUMPUR (Jan 22): AmBank Group expects Malaysia’s overnight policy rate (OPR) to stay at 2.75% in 2026, supported by a strong labour market, low inflation, and continued cash assistance boosting domestic consumption in a year that will see moderation in economic growth.

On Thursday, Bank Negara Malaysia kept the OPR at 2.75% for the third time since a 25-basis-point cut in July 2025.

Speaking at AmBank’s macroeconomic outlook briefing, AmBank Group chief economist Firdaos Rosli said inflation dynamics do not provide a compelling case for monetary easing. Headline inflation averaged 1.4% in 2025 and is projected to edge up to 1.8% in 2026.

Firdaos added that domestic demand will continue to provide support as economic growth moderates to 4.5% in 2026, with potential upside linked to targeted cash assistance programmes such as Sumbangan Asas Rahmah, as well as tourism-related spending under Visit Malaysia Year 2026.

“Taken together, there is a more compelling reason for Bank Negara Malaysia to stay at the current level and preserve its policy buffer for the future,” he said.

Firdaos said AmBank’s 4.5% gross domestic product (GDP) growth projection for 2026, down from an expected 4.9% in 2025, is due to uncertain global risks and geopolitical tensions that could affect Malaysia.

“If they were to impact Malaysia, it would probably be through the volatility from Brent (crude oil) and how it would impact the fiscal sustainability and fiscal position of Malaysia," he noted. 

Firdaos said growth will be supported by strong private consumption and artificial intelligence (AI)-driven investment, with private consumption expected to rise about 4.9%, boosted by cash handouts and a RM1,000 tax relief for domestic travel.

“We believe that in the case of private investment (growing at) 5.9%, it is actually a very healthy number. Although it is coming down compared to 2025’s figure (estimated growth at 9.1%), it came in at a higher base. Investments will probably be solid in 2026 largely because of the artificial intelligence supercycle,” Firdaos explained.

On the fiscal front, Firdaos said the government’s target to narrow the fiscal deficit to 3.5% of GDP in 2026 is achievable, assuming no unforeseen shocks that necessitate additional fiscal support. Malaysia aims to reduce its fiscal deficit to 3.8% of GDP in 2025, from 4.1% in 2024.

Firdaos expects the ringgit to reach RM4.00 against the US dollar in the first half of 2026, then strengthen to RM3.94 by year end, supported by narrower interest rate gaps with the US, with more expected rate cuts, and growth from the AI-driven investment boom.

Last year, the ringgit was the best-performing currency in Asia after rising more than 9% against the US dollar. On Thursday, the ringgit traded at RM4.04 against the greenback.

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