External sector to drive growth, OPR expected to remain at 2.75 percent

Bank Negara Malaysia (BNM) is anticipated to keep the Overnight Policy Rate (OPR) unchanged at 2.75% at its upcoming Monetary Policy Committee meeting. This decision is underpinned by a positive outlook for the nation's economic growth.

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The OPR's direction is heavily influenced by domestic factors such as economic growth and inflation. Both these factors remain stable and do not require BNM's intervention.

Dr. Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat Malaysia Bhd, highlighted that the external sector, fueled by demand in the semiconductor, oil and gas, and palm oil industries, alongside stable domestic demand, is driving economic resilience. He believes the current monetary policy is appropriate and conducive to growth. Maintaining the OPR will help stabilize financing costs, thereby encouraging private investment and household consumption.

Mohd. Sedek Jantan, Director and Investment Strategy and Economic Analyst at IPPFA Sdn. Bhd., projects that BNM will maintain the OPR at 2.75% through the end of 2026. He stated that the macroeconomic landscape does not provide strong justification for either raising or lowering interest rates. While inflation has seen a slight increase, it is primarily attributed to supply-side factors, such as rising energy prices due to geopolitical tensions, rather than excessive domestic demand. Therefore, raising interest rates would not address the root cause of inflation.

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Therefore, raising interest rates will not solve the cause of this inflation. At the same time, Malaysia's economic growth remains resilient, the labor market is still stable, and core inflation continues to be controlled.

Furthermore, Malaysia's economic growth remains resilient, the labor market is stable, and core inflation is under control. BNM is expected to continue adopting a pragmatic and forward-looking approach, rather than reacting impulsively to short-term data fluctuations. The stable OPR is seen as positive for the stock market, providing certainty for investors and corporations. It also benefits the banking sector by maintaining healthy profit margins without increasing the risk of credit demand slowdown. The property sector will see continued investment and development as financing costs remain stable, and consumers will benefit from stable household financing costs, supporting domestic spending, a key driver of Malaysia's economic growth.

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Given that we expect the OPR to be maintained, the impact on the stock market is generally positive as it provides certainty to investors and the corporate sector.