Malaysia: DBS expects policy rate to remain unchanged

With inflation contained within the official 1.5-2.5% range, GDP and exports performing strongly and fuel subsidies curbing cost pass-through, DBS Group Research’s report suggests monetary policy normalisation can wait until 1H27. The research team, led by Chief Economist Taimur Baig, expects Bank Negara Malaysia to leave its Overnight Policy Rate unchanged at 2.75% at its final meeting of 2026.

Inflation risks keep BNM cautious

"As written in our Macro Strategy note, BNM’s final meeting of 2026 on 5 November will be live and a close call, after the central bank opened the door to monetary policy normalisation during its September review."

"BNM Governor Abdul Rasheed Ghaffour reiterated in a Bloomberg interview on 15 October that the central bank has space to adjust policy if needed, as policymakers are vigilant about upside inflationary pressures amid strong economic growth. He also said that policy decisions will be data dependent."

"We think the latest available September data for the upcoming meeting suggest that policymakers can afford to be patient until 1H27, maintaining the Overnight Policy Rate at 2.75% for now."

"Inflation remained contained within the lower half of the official 2026 inflation forecast range of 1.5-2.5%, notwithstanding external price pressures and robust economic activity. Advance estimates showed GDP growth of 5.3% yoy in 3Q26, while exports jumped to a five-year high of 54.5% yoy in September, supercharged by the artificial intelligence boom."

"However, headline inflation eased slightly to 1.8% yoy in September 2026 from 1.9% yoy in August, while core inflation remained stable at 1.7% yoy. Fuel subsidies have limited the pass-through of upstream cost pressures to consumer prices, alongside stable domestic demand conditions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)