KUALA LUMPUR (Sept 3): Economists flagged that Bank Negara Malaysia may be turning more hawkish after analysing subtle shifts in language used on Thursday, as the central bank kept the overnight policy rate (OPR) unchanged at 2.75%.
They said small changes in the wording of its monetary policy statement for September, compared to July, suggest the central bank may be leaning towards raising rates later this year.
A clear indicator is the omission of one word when comparing with the previous iteration of the report, ANZ Research and HSBC Global Investment Research observed in their research notes. In July, BNM described its policy stance as “appropriate and consistent” with its growth and inflation outlook. In the September statement, “appropriate” was removed, leaving only “consistent”.
ANZ Research chief economist for Southeast Asia and India Sanjay Mathur said this was a sign that BNM is less comfortable keeping rates this low, as the firm kept its forecast for a 25 basis point hike at the next meeting on Nov 5.
HSBC senior economist for Asean Yun Liu, in a more cautious tone, said the wording change likely gives BNM flexibility if needed, rather than signalling a firm decision to raise rates.
”For BNM which does not usually have major changes in language used, today’s word omission looks quite important,” said Liu.
HSBC also pointed to changes in how BNM addressed inflation. July’s statement mentioned that inflation was expected to stay under control for the year, but this line was dropped in September. It was instead replaced with a call to action to watch cost pressures and demand conditions more closely.
In another perspective, independent economic research provider Pantheon Macroeconomics said BNM’s tone was calmer than expected, noting no mention of El Niño or the risk of rising food prices despite ongoing conflict in West Asia.
“The bank is either not seeing the warning signs, choosing to focus on relatively contained inflation in the face of the Iran war, or actively trying to downplay future inflation risks to manage expectations,” said the outfit's Asia economist Meekita Gupta in a note.
She pointed to Malaysia’s fuel subsidies as a key reason inflation has stayed contained, and said Pantheon Macroeconomics would only revise its own rate forecast if clearer signs of rising food prices emerge before the November meeting.
Out of 21 economists polled by Bloomberg ahead of the decision, Morgan Stanley and ANZ Research economists were the only two who had expected a rate hike.
BNM kept the OPR at 2.75%, unchanged since it last cut rates by 25 basis points in July last year. The central bank has held rates steady at every review since then, as the economy avoided major damage from US tariffs and grew strongly even as the Iran war continued.
Malaysia’s economy grew 6.0% in the second quarter from a year earlier, faster than the 5.4% pace recorded in the first quarter, driven by strong household spending and exports. In its statement, BNM said it expects full-year growth to come in around 5%, near the top of its earlier 4%-5% forecast, with growth staying resilient into 2027.