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BANK Negara Malaysia (BNM) has reduced the Overnight Policy Rate (OPR) by 25 basis points in a pre-emptive move aimed at preserving Malaysia’s steady economic growth path, according to Governor Datuk Seri Abdul Rasheed Ghaffour.
Speaking after the Monetary Policy Committee (MPC) meeting today, the Governor said the decision was driven by the central bank’s mandate to maintain price stability conducive to sustainable economic growth, amid a backdrop of external risks and moderate inflation.
“The Malaysian economy is on a strong footing, given our robust economic fundamentals. However, uncertainties surrounding trade and geopolitical developments could pose risks to our outlook,” said Abdul Rasheed. “The OPR cut is a pre-emptive measure to preserve and secure our steady growth path.”
Not a Response to US Tariffs
The Governor clarified that the move was not a reaction to any recent developments in US trade policy.
“Negotiations with the US are progressing, and Malaysia’s economy remains resilient,” he said. “The latest data shows continued expansion in the second quarter, driven by sustained domestic demand and export growth.”
Looking ahead, domestic demand is expected to remain the primary engine of growth. Household spending will be supported by employment and wage growth, particularly in domestic-oriented sectors, along with government measures such as civil servant salary hikes and a higher minimum wage. Lower borrowing costs from the OPR cut are also expected to support households and businesses.
Investment activity is projected to continue expanding, with progress in private and public sector projects and strong realisation of approved investments. Export performance could improve on the back of favourable trade outcomes, demand for electrical and electronic (E\&E) goods, and rising tourism.
However, the balance of risks to growth remains tilted to the downside, with global trade slowdowns, weak sentiment, and lower-than-expected commodity production cited as key concerns.
The central bank will release an updated GDP forecast for 2025 in the fourth week of July, but the Governor noted that “no major revision” is expected.
Inflation Expected to Remain Moderate
On inflation, Abdul Rasheed noted that both headline and core inflation averaged 1.4% and 1.9% respectively in the first five months of 2025. Despite concerns over the Sales and Service Tax (SST) expansion, global oil prices, and upcoming electricity tariffs, inflation is expected to stay moderate.
“Global commodity price pressures are limited, and domestic demand remains contained,” said the Governor. “We expect the impact of policy reforms on inflation to be manageable.”
The updated inflation forecast for 2025 will also be released alongside the revised GDP figures later this month.
Future OPR Moves Will Be Data-Driven
When asked if further rate cuts are likely this year, the Governor stressed that the MPC is not on a “pre-set course.”
“Future policy decisions will depend on how the outlook for domestic growth and inflation evolves,” he said. “Today’s cut is a pre-emptive step in response to global uncertainties.”
Sources of Economic Resilience
Despite external headwinds, Malaysians can take confidence in several sources of economic strength, Abdul Rasheed said. He pointed to ongoing structural reforms aimed at rebuilding fiscal space and enhancing economic resilience.
“The recent SST adjustments and upcoming fuel subsidy rationalisation are necessary steps to ensure the government can continue to support the economy effectively when needed,” he said, adding that targeted rollouts and exemptions would help ease the transition.
Other long-term drivers include the continued implementation of national strategies such as the New Industrial Master Plan and the National Energy Transition Roadmap. These initiatives are expected to sustain investment and productivity growth, especially in infrastructure, construction, and the green economy.
“Malaysia’s strong fundamentals, supportive policies, and well-established business ecosystem ensure that we remain an attractive destination for global investors,” the Governor concluded.
The next MPC decision is scheduled for 4 September 2025. BNM will release its Quarterly Bulletin for Q2 2025 on 15 August, this year. - July 9, 2025
