Bank Negara Malaysia (BNM) is expected to lower the Overnight Policy Rate (OPR) to 2.75% in 2025, compared to the current 3.0%, according to economic analyst Associate Prof Dr. Ahmed Razman Abdul Latiff.
Speaking to Utusan Malaysia, Dr. Ahmed Razman explained that the reduction could align with the United States Federal Reserve’s recent interest rate cut to 4.5%. He noted, “In 2022, when the US interest rate was at 4.5%, Malaysia’s OPR was at 2.75%. It’s likely we will see a return to that rate, as Malaysia’s inflation rate remains low at 1.8%.”
BNM’s Next Steps on Monetary Policy
The potential rate cut marks a strategic response to both global and domestic economic conditions. Malaysia’s last OPR adjustment was in May 2023, when it increased from 2.75% to 3.0%. The Monetary Policy Committee (MPC) is set to meet on January 23–24, 2025, to review the current rate in light of recent developments.
Lowering the OPR could ease borrowing costs for businesses and households, spurring economic activity while keeping inflation in check.
Optimistic GDP Growth Forecasts for 2025
Dr. Ahmed Razman also projected Malaysia’s Gross Domestic Product (GDP) growth to reach 4–5% in 2025, citing the following factors:
- Stable Political Environment: Malaysia’s stable government fosters investor confidence.
- Strong E&E Demand: The electrical and electronics (E&E) sector, especially for silicon chips, continues to see robust demand globally.
- High Commodity Prices: Sustained prices for oil and other key commodities bolster economic stability.
- Rising Foreign Direct Investment (FDI): Multinational corporations (MNCs) are expected to increase their presence in Malaysia, particularly in high-tech industries like aerospace, artificial intelligence, hybrid technologies, and silicon chip manufacturing.
Dr. Ahmed Razman emphasized the country’s growing appeal to MNCs, stating, “Malaysia’s high-tech ecosystem will attract more MNCs, driving innovation and economic growth.”
Potential Risks to Economic Growth
Despite the optimistic outlook, several risks could disrupt the market in 2025:
- US-China Trade Tensions: A resurgence of tariff wars between the US and China could impact global supply chains.
- Geopolitical Conflicts: Ongoing tensions in the Middle East, the Russia-Ukraine war, and the US’s actions against the BRICS economic bloc pose external challenges.
- Global Economic Uncertainty: Fluctuations in commodity prices and economic slowdowns in key trading partners could affect Malaysia’s exports and investment inflows.
The Bigger Picture
If BNM reduces the OPR as projected, it would signal a shift towards accommodating monetary policy, aimed at fostering domestic economic growth amid global uncertainties. With inflation at manageable levels, the focus is likely to remain on stimulating investment and consumption.
What It Means for Businesses and Consumers
- Lower Borrowing Costs: Businesses could access cheaper credit, enabling expansion and increased capital investments.
- Consumer Spending Boost: Lower rates may encourage households to spend more, supporting sectors like retail and housing.
- Export Competitiveness: A reduced OPR could help maintain Malaysia’s competitive edge in global markets.
