Kuala lumpur: Bank Negara Malaysia’s (BNM) decision to cut the Overnight Policy Rate (OPR) by 25 basis points to 2.75 per cent is a proactive stance to stimulate business activity, sustain domestic demand, bolster growth, and maintain Malaysia’s economic resilience.
According to BERNAMA News Agency, the cut in rates, which would increase disposable income, has been described by economists as a pragmatic move given concerns over potential risks from higher US tariffs. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid stated that the main focus now is to promote growth, and the moderation in the inflation rate has opened up the space for BNM to reduce the OPR.
Dr Mohd Afzanizam said the preemptive cut should provide a boost to confidence, which can be positive for growth. The rate cut was considered a good move as BNM is aware of the associated risks in the evolving economic outlook, demonstrating that the central bank is effectively managing the situation, which can translate into market confidence.
He further explained that the OPR reduction would effectively help reduce the cost of borrowings among existing bank customers, whether individuals or businesses, especially those who take variable-rate financing. This would reduce their repayment amount and improve disposable income, allowing potential borrowers to shop around for competitive financing rates, thus helping to sustain domestic demand.
Regarding the ringgit’s performance, Dr Mohd Afzanizam mentioned that it is mainly influenced by external factors and its relation with the OPR cut. Traders and investors will assess the situation, such as global uncertainties, holistically. He noted that Malaysia has exhibited a favourable macroeconomic trend with fiscal deficits narrowing, which is positive from the standpoint of credit rating agencies.
Additionally, Dr Mohd Afzanizam outlined future fiscal improvements, such as the expansion of the Sales and Service Tax (SST) scope, electricity tariff revision, and RON95 subsidies rationalisation, which would translate into a better fiscal position for the federal government and a strong ringgit.
Meanwhile, Juwai IQI global chief economist Shan Saeed remarked that BNM’s OPR cut to 2.75 per cent signifies a tactical pivot towards an accommodative policy, aiming to bolster domestic demand amidst global challenges. With GDP growth moderating and trade softening, partly due to escalating US tariffs, this preemptive easing aims to enhance liquidity, stimulate consumption, and support private investment.
Shan added that from a macroeconomic standpoint, the rate adjustment is likely to provide tailwinds to domestic sentiment and credit growth. He noted that GDP forecasts are now likely to grow between 4.7 and 5.3 per cent, and the easing cycle could support a more resilient rebound later.
Regarding the ringgit’s performance, Shan mentioned that the move might temper appreciation pressures, aligning with BNM’s aim to achieve a balanced foreign exchange stance. He expects BNM to maintain structural stability in the ringgit, hovering around 4.10 to 4.30 against the US dollar in 2025.