Bank Negara Malaysia is prioritizing economic stability, keeping its benchmark interest rate unchanged for the fifth consecutive meeting as it assesses the fallout from geopolitical tensions.
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Malaysia Holds Rate at 2.75% to Gauge Middle East Conflict Impact
Malaysia’s central bank held its benchmark interest rate steady at 2.75% on Thursday, opting for a course of stability as it evaluates the potential economic fallout from the ongoing conflict in the Middle East. The decision marked the fifth consecutive policy meeting where the rate was left unchanged.
"The current monetary policy stance was considered to be 'appropriate and consistent with the outlook of continued price stability and sustainable economic growth," Bank Negara Malaysia (BNM) said in a statement. The bank added that it would "remain vigilant to ongoing developments," signaling a data-dependent approach in the months ahead. The vote split for the decision was not disclosed.
The move was widely anticipated, with consensus from all 28 economists in a Reuters poll and 25 economists in a Bloomberg survey predicting the hold. The central bank last adjusted its policy rate in July of the previous year, when it enacted a 25-basis-point cut as a pre-emptive measure against global headwinds.
The hold signals a cautious wait-and-see strategy, balancing robust domestic growth against significant external risks. While higher global commodity prices stemming from the war could introduce cost pressures, the central bank currently assesses that the impact on domestic inflation will be contained. The bank's primary focus remains on ensuring the economy's resilience, which is officially forecast to expand between 4% and 5% this year.
Growth Momentum Meets Global Uncertainty
Malaysia's economy entered the year on a strong footing. Official advance estimates showed gross domestic product grew 5.3% from a year earlier in the first quarter of 2026, driven by sustained domestic demand and a strong export performance. However, BNM acknowledged that the forward-looking picture is less clear.
"Uncertainties surrounding the duration and severity of the Middle East conflict will affect the outlook of domestic growth and inflation," the bank's statement noted. This geopolitical risk is now the key variable for a central bank that is otherwise facing a stable domestic environment. The final, more detailed GDP figures for the first quarter are scheduled for release on May 16, which will provide more clarity on the economy's momentum.
Inflation Well-Contained for Now
A crucial factor affording BNM the flexibility to hold rates is the benign inflation environment. Headline inflation averaged just 1.6% in the first quarter of 2026, while core inflation, which strips out volatile items, averaged 2.1%. Both figures are comfortably within the bank's target range, allowing it to prioritize stability without needing to tighten policy to combat price pressures.
This contrasts with the situation in many other economies where central banks have been forced to raise rates aggressively to fight persistent inflation. For Malaysia, the current policy stance is seen as sufficient to anchor price stability while supporting sustainable growth. Looking ahead, a majority of economists polled by Reuters expect no change to the policy rate for the rest of the year, with only two of 22 forecasting a 25-basis-point hike in the next quarter.
This article is for informational purposes only and does not constitute investment advice.
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