08 September 2025

Monetary Policy Committee (MPC)

SUMMARY

➤ Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 2.75%, in line with consensus. MGS yield curve and USDMYR movement were relatively unchanged following the non-event announcement as the decision were within market expectations.

➤ The central bank, however, padded the expectations with cautious but stabilizing tone on outlook for global and domestic growth. Growth outlook likely to be supported by resilient domestic demand and moderating inflation amid easing trend in global commodity prices and absence of demand-push pressures.

➤ At current OPR, BNM considers the current monetary policy condition to be appropriate and supportive of the economy. We are of the view that BNM would likely to hold OPR until year-end with probability of easing should growth dipped below 4% of the official projection in 1H26.

➤ MYR bond yields would likely to be well-supported by local and foreign demand on tightening interest rate differentials, resilient domestic economy and political stability relative to regional peers. Our next focus will be on 2026 Budget announcement scheduled on 10 Oct followed by the final monetary policy committee (MPC) meeting for the year on 5 – 6 Nov.

➤ Hence, we target a duration strategy of between 5 – 7 years, focusing on high quality corporate bonds for yield pick-up and strategic trading to enhance returns from a relatively flat yield curve environment. We continue to see a limited risk-reward benefit from extending duration exposure, as yield curve is expected to be flattish.

• Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 2.75%, citing current monetary policy level is appropriate and supportive of the economy. The non-event decision was within market expectations (Bloomberg consensus: 96%) underpinned by steady growth trajectory, modest inflation and relatively low unemployment rate. MGS yield curve was broadly unchanged corresponding to the previous closing yields. MYR marginally depreciated against the US dollar by 0.21% to 4.2293 from prior closing of 4.2270.
• The central bank maintained a cautious tone on growth, while acknowledging improvements in global conditions. Improvements in labor market conditions, easing monetary policies, and fiscal stimulus are expected to cushion economic growth despite trade policy uncertainties. For Malaysia, the BNM anticipates domestic growth remains subject to evolving uncertainties offset by resilient domestic demand, robust investment activity, and catalytic government policies. Additional upside to growth includes trade de-escalation, pro-growth measures in major economies, continued demand for electrical and electronics (E&E) goods, and robust recovery in tourism activities. Headwinds to growth remained from slower global trade, weaker sentiment, as well as lower-than-expected commodity production.
• Headline inflation for 2025 and 2026 is expected to remain moderate, supported by easing global commodity prices and absence of excessive demand pressures arising from slower exports demand. The impact from the domestic policy reforms on administrative prices is expected to be contained as RON 95 subsidy rationalization is expected to only impact foreign nationals and the top 15% of the population by income class. Headline and core inflation averaged 1.4% and 1.9% respectively, in the first seven months, within the official forecast average of between 1.5% to 2.3% in 2025.
• The absence of any reference to the MYR in the latest statement juxtaposed that BNM is less concerned about the volatility in the foreign exchange market as compared to the previous July MPC statement which it explicitly highlighted that the local currency would be continuously driven by external factors counterbalanced with domestic structural reforms, domestic structural reforms, ongoing initiatives to encourage flows to support the ringgit.

Opus View

• We anticipate BNM to maintain OPR until end of 2025 underpinned by stable economic outlook and moderating inflationary pressures. We are expecting GDP for the next following quarters to remain steady between 4.0-4.5% YoY as trade performance is expected to recover amid uncertainty on Trump’s sectoral-specific tariffs. Inflation is also expected to remain subdued with cost pass-through spillover effects from tariffs and expanded Sales and Services Tax (SST) transmission likely to be gradual. Nevertheless, a 25bps rate cut in Q1 2026 is within our expectation should the 2025 full year GDP growth come in lower than 4%. The next focus will be on Malaysia’s 2026 Budget announcement scheduled on 10 October 2025 ahead of the final BNM monetary policy committee (MPC) meeting for the year on 5 – 6 November.
• The local government bond yield curve could continue to shift downward in the near term on narrowing interest rate differential should the US Federal Reserve trim the Fed Fund Rates in September. Given resilient economic fundamental and stable political environment as compared to regional peers, Malaysia bond market yields remain well-supported underpinned by demand from local and foreign investors (YTD foreign net fund flows as of July: RM15.91bn).
• We opine that the domestic bond market remains as safe haven for investors seeking to hedge against potential volatility in the equity market in 2025. We continue to see a limited risk-reward benefit from longer-end duration, as the yield curve remained relatively flat predicted that the market is pricing another rate cut in 1H 2026 to which we would overweight duration strategy. Hence, we target a duration strategy of between 5 – 7 years, while focusing on high quality corporate bonds for yield pick-up and strategic trading opportunities to enhance returns from a relatively flat yield curve environment.