BANK NEGARA Malaysia (BNM) kept the overnight policy rate (OPR) unchanged at 2.75% in the Jan 2026 MPC meeting, as expected.
According to BNM, global growth has surprised to the upside, underpinned by lower-than-anticipated tariffs, a rise in AI-related spending and improved fiscal support.
“Looking into 2026, while the trade frictions from tariffs remains an economic headwind, BNM viewed the global growth outlook as resilient, supported by sustained domestic demand, continued disinflationary trends, a tech investment upcycle, as well as supportive fiscal and monetary policies,” said Hong Leong Investment Bank (HLIB).
BNM continued to see upside risks from a continued uptrend in tech spending, a more benign tariff impact and pro-growth policies in major economies.
Nevertheless, the central bank acknowledged downside risks stemming from potentially higher tariffs, renewed geopolitical fragmentation, coupled with global financial market volatility. Concurrently, BNM continued to flag the fragility associated with elevated valuations in the financial markets.
On the domestic front, GDP growth is expected to trend near the upper end of the forecast range of +4.0-4.8% in 2025. Looking ahead, BNM expects sustained expansion in 2026, anchored by resilient domestic demand.
Household spending is set to be underpinned by employment and wage gain, alongside income-supportive policies. BNM also added that investment activity will be propelled by further progress of multiyear projects, the rollout of smaller-scale public projects, continued high realisation of approved investments, alongside the ongoing implementation of national masterplans.
On the external front, Malaysia is poised to benefit from stronger external demand for E&E goods and higher tourist spending, but the trade outlook remains subject to global policy uncertainty.
Upside risks to growth could arise from better global prospects, stronger demand for E&E products, as well as robust tourism activity. However, downside risks loom, due to slower global trade activity and lower-than-expected commodity production.
“Taking all into consideration, we maintain our 2026 GDP growth forecast at 4.5%, at the upper end of MOF’s target range of 4.0-4.5%,” said HLIB.
BNM maintained a benign inflation outlook for 2026, predicated on modest global commodity prices and the absence of demand-driven price pressures. The Malaysian economy remained solid in 2025, delivering a full-year growth of 4.9% following a robust advance reading of 5.7% in quarter four 2025 (4Q25).
Concurrently, domestic inflationary pressures appeared manageable, settling at 1.4% in 2025 (2024: 1.8%). Additionally, the external risk environment has slightly improved following the recent de-escalation of US-EU tensions.
Nevertheless, the outlook remains clouded by a fractious geopolitical landscape, particularly the unpredictability of US policy directions.
“Given this Goldilocks backdrop of steady growth and muted inflation, we maintain our expectation for the MPC to hold the OPR steady at 2.75% throughout 2026,” said HLIB. —Jan 23, 2025
Main image: Reuters
