KUALA LUMPUR (May 7): Economists expect for the overnight policy rate (OPR) to remain at 2.75% throughout 2026, as strong economic fundamentals and controlled inflation help maintain a generally stable policy approach.
However, RHB Research believes that the possibility of a 25-basis-point (bp) hike this year persists, if inflation proves to be higher and more sustained than anticipated, surpassing the official forecast range of 1.5% to 2.5%.
In a note following Bank Negara Malaysia’s (BNM) monetary policy decision on Thursday, RHB Research said it believes that upside risks on inflation are present, as geopolitical tensions continue to sustain elevated global energy prices.
This may lead to increased pass-through effects on domestic inflation, the research arm of RHB Bank Bhd (KL:RHBBANK) said.
“While this is not our base case, should oil prices surge to US$140 per barrel amid prolonged geopolitical tensions, headline inflation could rise to around 3.2%, based on our empirical findings that a 1% increase in Brent prices lifts consumer price index (CPI) by approximately 0.01 percentage points in the current month and 0.02 percentage points in the following month,” said RHB Research.
MBSB Research also expects headline inflation to edge higher to 2% in 2026 from 1.4% in 2025, as prolonged geopolitical tensions could keep global energy prices elevated, reinforcing a “higher-for-longer” inflation environment.
While projecting Malaysia’s economy to grow by 4.2% this year, MBSB Research flagged downside risks stemming from geopolitical uncertainty and shifting US trade policies. Broad-based tariffs and potential targeted restrictions on semiconductors could disrupt Malaysia’s key electronics sector and weaken external demand, the research firm said.
On the domestic front, growth could also be weighed down by softer sentiment and rising price pressures, as businesses pass on higher input costs to consumers, the research house added.
Meanwhile, ANZ Research expects the OPR to rise to 3% by 1Q2027, noting that risks are skewed “toward an earlier move if price pressures broaden alongside resilient growth, with upcoming inflation prints being critical in assessing the timing”, according to its note.
This comes as BNM adopts a more cautious tone amid the ongoing Middle East conflict, with concerns that a prolonged or escalating situation could weigh on both growth and inflation.
The OPR stood at 3% from May 2023 until May 2025, before being reduced by 25 basis points to 2.75% in July last year. At its latest Monetary Policy Committee (MPC) meeting — the third of six scheduled reviews this year — BNM kept the rate unchanged, in line with expectations from all 25 economists surveyed by Bloomberg.