KUALA LUMPUR (July 6): Easing inflation risks are allowing wiggle room for Malaysia’s central bank to maintain interest rates at Thursday’s monetary policy review, said CIMB Investment Bank.

The case for an extended hold through 2026 has strengthened as oil prices fell towards pre-war levels while domestic inflation remained well-contained throughout the crisis, economists Chew Khai Yen and Michelle Chia said in a note on Monday.

“Inflation remains the key swing factor for monetary policy” but the outlook is softening while growth prospects are still uncertain with “modest upside bias from exports”, they said.

The monetary policy review is scheduled for July 9. The last change was in July 2025 when Bank Negara Malaysia (BNM) reduced the overnight policy rate by 25 basis points to 2.75%.

At its most recent meeting on May 7, BNM judged the monetary policy stance to be appropriate even as the central bank flagged uncertainties from the then raging conflict in the Middle East.

BNM will only raise policy rate if growth exceeds 5% and inflation accelerates above 3%, which is not the base case for now, according to the CIMB Investment Bank economists.  

Still, “second-round risks have not disappeared” with the house anticipating up to a 70-basis-point contribution to food and core inflation over the next three quarters.

Producer price data indicates that cost pressures are gradually shifting from crude materials to intermediate and finished goods, Chew and Chia wrote.

Further, intermediate manufacturing inputs have become a persistent driver of month-on-month producer inflation, pointing to lingering upside risks to inflation, they flagged.