DBS Group Research economist Chua Han Teng notes that Bank Negara Malaysia (BNM) held the Overnight Policy Rate at 2.75% while dropping language that the current level is appropriate. DBS expects rates to remain unchanged through 2026 but sees risks tilted towards a one-off policy normalisation.

BNM holds but signals flexibility

“Bank Negara Malaysia (BNM) maintained its Overnight Policy Rate (OPR) at 2.75% on September 3, extending its pause for a seventh consecutive decision.”

“We maintain our view for BNM to stay on hold for the remainder of 2026, given contained inflation amid a resilient economy, but see the balance of risk tilted towards a possible one-off policy normalisation.”

“In its monetary policy statement, BNM notably flagged two key areas that warrant vigilance in assessing the inflation outlook.”

“First, policymakers will continue to evaluate the still fluid and unresolved conflict in the Middle East, which will likely keep global commodity prices, particularly energy prices, elevated relative to a year ago, and generate upward cost pressures through the supply-side shock.”

“Second, the authorities will monitor whether strong economic growth (potentially around 5% in 2026 and resilient in 2027), partly driven by robust artificial intelligence-related tailwinds, translates into stronger demand-pull price pressures due to rising wage growth. Thus far, the capital-intensive nature of this expansion has limited spillovers to domestic inflation.”

“The door is now open for a normalisation of July 2025’s 25bps insurance OPR cut in subsequent meetings if incoming economic activity data and external developments evolve favourably and inflationary pressures rise.”