KUALA LUMPUR (Oct 30): Malaysia appears to be weathering the energy shock with inflation chugging along at a benign pace, reducing the urgency to tighten policy rate, HSBC said on Friday.

Bank Negara Malaysia (BNM) will likely stand pat next month at the final monetary policy meeting scheduled for the year, the research house said, predicting that the central bank will only raise the overnight policy rate by 25 basis points in the first quarter of 2027.

“We do not believe current underlying inflation is strong enough to trigger BNM” to move immediately, HSBC said.

BNM’s next meeting is on Nov 5. The central bank has maintained the rate at 2.75% at every scheduled review since cutting it by 25 basis points in July last year, as generous subsidies and price control helped keep inflation at 2% or lower since then.

Malaysia’s economy, meanwhile, has expanded at a solid clip of 5.3% year-on-year in the third quarter with all growth engines firing. Exports of electronics, in particular, have surged thanks to a boom in artificial intelligence (AI).

Growth will likely come in at 5.5% this year, according to HSBC’s latest forecasts, putting the country’s economy on track to record growth of above 5% for a third consecutive year.

While there may be some concerns whether strong growth will lift inflation, other AI beneficiaries in Asia, including Taiwan, Korea, and Singapore, have not seen a broad-based inflation pick-up, the house noted.