Malaysia cuts rate for first time since 2020 after tariff threat

[KUALA LUMPUR] Malaysia lowered its benchmark interest rate for the first time in five years, acting after US President Donald Trump increased a threatened tariff on the South-east Asian country to 25 per cent.

Bank Negara Malaysia (BNM) cut the overnight policy rate (OPR) by 25 basis points to 2.75 per cent on Wednesday (Jul 9), the first easing since July 2020.

Some 13 of 23 economists surveyed by Bloomberg News expected a cut, a slight increase from Monday, with the rest predicting no change.

“The balance of risks to the growth outlook remains tilted to the downside, stemming mainly from... slower global trade (and) weaker sentiment, as well as lower-than-expected commodity production,” BNM said in a statement. “The reduction in the OPR is, therefore, a pre-emptive measure aimed at preserving Malaysia’s steady growth path amid moderate inflation prospects.”

The cut marks the first change in monetary policy since May 2023, when Malaysia capped off a 12-month cycle of rate hikes. It also follows a May cut to the statutory reserve requirement for banks to 1 per cent from 2 per cent, which released roughly RM19 billion (S$5.7 billion) into the banking system. 

The central bank reiterated its view for the currency.

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“The ringgit performance will continue to be primarily driven by external factors,” BNM said. “Malaysia’s favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the ringgit.”

BNM’s shift to easing underscores policymaker concerns about the impact of tariffs on sales to the US, which in April threatened a 24 per cent levy and then raised that to 25 per cent this week.

A pause on the higher levy remains in effect until Aug 1, though most exports to the US are already subject to a 10 per cent tariff. The Malaysian government on Tuesday said it was “committed to continuing engagement with the US” over a trade deal. BLOOMBERG