Bank Negara Malaysia (BNM) held its overnight policy rate steady at 3.00% during its latest monetary policy meeting in September 2024, signalling that the central bank is unlikely to make any further rate adjustments for the remainder of the year or next, Capecon reported. The decision, which was widely anticipated by all 30 economists polled by Reuters, marks a continuation of BNM's cautious approach following its last rate hike of 25 basis points in May 2023.

Malaysia’s economy showed robust performance in the first half of 2024, with GDP growth accelerating to 5.9% y/y in the second quarter, up from 4.2% in the first quarter. Strong domestic demand, coupled with improved export performance, has supported this growth, leaving little need for additional monetary stimulus. BNM expressed optimism about the country's economic outlook, citing these factors as key drivers of continued expansion.

However, inflation risks are rising. While Malaysia’s headline inflation rate remained modest at 2.0% y/y in July, upcoming cuts to long-standing fuel subsidies could push inflation higher. Analysts, including those at BNM, expect the inflation rate to climb to 3% by the end of the year. Though BNM does not operate with an official inflation target, a 3% inflation rate would exceed the five-year average and could put the central bank in an uncomfortable position. BNM acknowledged the uncertainty surrounding inflation, noting that future price movements would largely depend on how subsidy changes impact the broader economy.

Despite these inflation concerns, BNM is expected to maintain its current interest rate stance for the rest of 2024 and throughout 2025. While most analysts share this view, some are forecasting potential rate cuts next year if inflationary pressures subside or growth slows.

With a firm economic foundation in place but inflation risks looming, BNM's measured approach to monetary policy seems set to continue, keeping Malaysia on a steady course amid global uncertainties.