Malaysia holds rates, vows vigilance as inflation pressures grow

[KUALA LUMPUR] Malaysia’s central bank kept interest rates unchanged on Thursday (Nov 5) but signalled it would be ready to act as price pressures grow.

Bank Negara Malaysia (BNM) held its overnight policy rate at 2.75 per cent at its final policy meeting of 2026, extending a pause that has been in place since a quarter-point cut in July 2025.

The Monetary Policy Committee’s (MPC) decision was predicted by 17 of 23 economists surveyed by Bloomberg. Six expected the central bank to raise borrowing costs for the first time in more than three years.

“The MPC will remain vigilant to the evolving conditions and assess their implications on the balance of risks surrounding the outlook for domestic inflation and growth,” the central bank said in a statement. 

“Going into 2027, geopolitical developments, elevated global commodity prices and adverse weather conditions are expected to exert upward pressure on inflation,” it said, adding that both the headline and core gauges are expected to edge higher.

In the swaps market earlier on Thursday, traders were pricing in about a 25 per cent probability of a rate hike by BNM within the next six months, according to data compiled by Bloomberg.

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Economic growth is set to stay resilient in 2027, with the artificial intelligence boom and robust tourist spending boosting Malaysia’s external sector, the central bank said. Stable labour conditions and investment should also support domestic demand.

The decision follows a shift in guidance at BNM’s previous meeting in September, when it dropped its description of the policy stance as “appropriate”. Governor Abdul Rasheed Ghaffour said in October the change gave the central bank greater room to adjust rates, if needed.

Despite a surge in global oil prices fuelled by the Middle East war, inflation in Malaysia has remained moderate, helped by government subsidies that keep fuel prices among the lowest in the world.

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The nation’s position as a net energy exporter, supported by its oil and natural gas reserves, has also shielded the economy from the higher import costs confronting energy-dependent neighbours such as Thailand and the Philippines.

As a result, regional central banks are taking increasingly divergent paths. The Philippines raised its benchmark rate by 50 basis points to 5.5 per cent in October as inflation surged, while Indonesia has kept borrowing costs at 5.75 per cent after tightening earlier in 2026.

In contrast, Thailand has maintained an accommodative 1 per cent rate since February as the central bank sees tamer price pressures.

In Malaysia, inflation is forecast to pick up early in 2027 as higher energy, food and other input costs filter through to consumer prices, while the economy continues to expand at a robust pace.

Consumer prices rose 1.8 per cent in September from a year earlier, within the government’s forecast range of 1.5 to 2.5 per cent in 2026. 

The economy expanded 5.3 per cent in the three months through September from a year earlier, according to advance estimates from the statistics department. Gross domestic product grew 5.5 per cent during the three quarters of 2026. BLOOMBERG