KUALA LUMPUR (Jan 22): Economists continue to expect Malaysia’s central bank to maintain its key interest rate throughout this year, unless an excessive demand pressure or tariff shock emerges.

Domestic demand remains resilient and is expected to continue anchoring the economy in 2026, while the tariff impact has been mild as AI-related demand bolstered electronics exports, economists noted.

The view is grounded on Bank Negara Malaysia’s (BNM) move on Thursday to keep the overnight policy rate at 2.75%, as predicted by all 22 economists polled by Bloomberg.

The central bank is to keep the key rate untouched in its remaining five reviews this year, as the Malaysian economy is in "a ‘Goldilocks’ like stage, with decent growth and stable inflation prospects”, HSBC Global Investment Research said in a note.

However, US tariff woes have yet to fully come to pass with the 40% transshipment tariff and the fate of semiconductor tariffs still lingering, the house noted.

Meanwhile, core inflation is expected to remain stable, though on “the absence of excessive demand pressures”, it added, quoting BNM.

At the current monetary policy level, BNM has reserved space for unexpected economic shocks, Pantheon Macroeconomics Asia economist Meekita Gupta noted.

“The central bank appears to have priced in the drag from expected commodity weakness, citing it as a downside risk only if conditions deteriorate further than anticipated. While it also flagged potential tariffs and an AI market correction as risks, we think the latter is more pertinent,” Gupta said in a note.

“Finally, BNM seems comfortable with the inflation trajectory, which should preserve policy space for a rate cut if required,” she added.

MBSB Research noted the upcoming Sara cash assistance in February may fuel demand-pull inflation; inflation is expected to stay moderate in 2026 with a slight uptick.

On the currency front, MBSB said a stable or neutral monetary policy stance is expected to be positive for the ringgit, with the US Federal Reserve's key interest rate projected to ease further.