Mixed Outlook Ahead Of BNM's OPR Announcement Tomorrow -- Economists

By Zufazlin Baharuddin

KUALA LUMPUR, May 7 (Bernama) -- Although the overnight policy rate (OPR) is expected by many to stay at 3.0 per cent, some economists see a possible 25 basis points (bps) cut by Bank Negara Malaysia (BNM) as pre-emptive support against the potential downside risks of the American tariffs.

They believe that business sentiment has turned bearish despite Washington’s 90-day pause on the 24 per cent import levy on Malaysia, with industries operated by both big and small companies being affected.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the expectation of the rate cut is also mainly due to concerns over global growth.

After US President Donald Trump announced a series of reciprocal tariffs affecting countries across the board on April 2, 2025, concerns over Malaysia’s economic outlook and trade and investment prospects have expanded.

The latest is that Malaysia will begin negotiating with the US next week with the hope of ensuring no tariffs are imposed, especially in key sectors.

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With downside revisions to growth this year from the earlier forecast of 4.5 per cent-5.5 per cent, expectations, therefore, are generally mixed ahead of Bank Negara Malaysia’s (BNM) upcoming Monetary Policy Committee (MPC) decision scheduled for tomorrow (Thursday). 

Some economists anticipate a rate cut

Mohd Afzanizam said: “Although we are having a 90-day pause and negotiations soon, business and consumer sentiment are very guided by that which could have an implication in terms of consumption and investment decisions especially in the second half of 2025 (2H 2025).”

“The rate cut is to provide a pre-emptive measure, so that in 2H 2025, there will be more support from the monetary policies angle,” he told Bernama.

In the same light, INCEIF University economic analyst Prof Baharom Abdul Hamid said that despite the 90-day pause, Trump’s actions have already affected industries ranging from multinational corporations and government-linked companies to small and medium enterprises (SMEs).

As such, he opined that a rate cut would be timely to help cushion the impact and support business sentiment.

“Our exports to America are in critical sectors such as semiconductors and pharmaceuticals, and in this pause phase, the demand has actually started to stop as the importer, the US itself, is not sure how much tariff to impose.

“I expect that in at least one month to three months, this will be chaotic as nothing can be certain, so to reduce the impact, I think BNM will lower the OPR a little tomorrow,” he said.

However, he said the OPR cut would be temporary, with expectations for it to stabilise by the third quarter of 2025.

Other economists anticipate OPR to remain steady

Meanwhile, KSI Strategic Institute for Asia Pacific senior economic advisor Dr Anthony Dass anticipates that BNM will maintain the OPR at 3.0 per cent, while adopting a more dovish stance and signalling a willingness to ease policy later if economic data warrants it.

“BNM has consistently stated that the current OPR level supports the economy and aligns with the outlook for inflation and growth. 

“Inflation has been manageable, and the economy is poised to grow at a decent level -- though lower than the 4.5 per cent target -- driven by domestic demand,” he said.

He posited that the central bank is expected to maintain the OPR at 3.0 per cent, but the possibility of a rate cut later in early 2H 2025 cannot be ruled out.

“This will largely depend on evolving domestic and global economic conditions and BNM’s assessment of risks and outlook.

“The chances of a rate cut in 2H 2025 would be due to subdued inflation, a stronger ringgit and a higher likelihood of interest rate cuts by the US Federal Reserve,” he said.

Furthermore, UOB Kay Hian Wealth Advisors Sdn Bhd head of investment research Mohd Sedek Jantan said MPC will likely exercise strategic patience, maintaining flexibility until greater clarity emerges.

“Trade negotiations with the US are still in progress. The potential outcome, ranging from de-escalation to retaliatory tariffs, has different implications for Malaysia’s trade outlook and external balances.

“Against this backdrop, any premature policy loosening would carry asymmetric risks. A rate cut now could place downward pressure on the ringgit and potentially amplify imported inflation, particularly if tariffs escalate following the current deferral period,” he said.

The OPR was the highest at 3.50 per cent in April 2006 and lowest at 1.75 per cent from July 2020 until May 2022 to support the economy during the COVID-19 pandemic.

At its last meeting on March 6, 2025, the central bank maintained OPR at 3.0 per cent, which was unchanged for 12 consecutive meetings since May 2023.

-- BERNAMA