Malaysia's central bank opted to hold its benchmark interest rate steady at 3% during its 10th consecutive policy meeting on January 22, citing robust economic performance and controlled inflation, while cautioning about potential currency fluctuations, Reuters reported. The overnight policy rate, unchanged since May 2023, is expected to remain at this level until at least the end of 2025, in line with market expectations.

Bank Negara Malaysia emphasised that the current rate is conducive to supporting economic growth and aligns with its evaluation of inflation and growth trends. The central bank projects sustained economic activity in 2025, driven by strong domestic spending. Factors such as increased household consumption from wage hikes, higher public-sector salaries, rising investment, and export growth are expected to bolster the economy further.

While other central banks are anticipated to ease rates in the coming months, Malaysia is likely to keep its rate unchanged due to its resilient economic performance, according to Gareth Leather, senior Asia economist at Capital Economics.

However, risks remain, particularly from slowing global demand as key trading partners face challenges related to trade restrictions, lower commodity output and weaker economic activity.

Malaysia's economy is forecast to expand by 5.1% in 2024, recovering from 3.6% growth in 2023. Official estimates suggest fourth-quarter growth of 4.8% year-on-year (y/y), slightly slower than the previous quarter's 5.3%. Looking ahead, the government and central bank predict growth between 4.5% and 5.5% in 2025.

Inflation is projected to remain under control as global cost pressures ease and domestic demand remains moderate. The annual inflation rate for 2024 was 1.8%, down from 2.5% in 2023, with December's consumer price index rising 1.7% y/y.

The central bank noted that reduced global commodity prices are likely to contribute to lower costs. Although domestic policy reforms, including subsidy cuts for diesel, electricity and chicken, have been implemented, their impact on inflation is expected to be contained.

Malaysia’s currency, the ringgit, continues to be influenced by external factors. Narrowing interest rate differentials between Malaysia and advanced economies are expected to have a stabilising effect. However, inflation risks remain tied to domestic policies, global commodity price fluctuations and financial market dynamics.