Overnight rate expected to stay at 2.75% as Anwar announces cost-of-living measures

Malaysia’s central bank is expected to hold its benchmark interest rate steady as controlled inflation removes the immediate need for tighter monetary policy, according to CIMB Securities.

The brokerage expects Bank Negara Malaysia’s Monetary Policy Committee to keep the overnight policy rate at 2.75% during its Sept. 3 meeting. Investors will focus on the committee’s statement for any change in its assessment of inflation prospects and risks after strong economic growth in the second quarter of 2026.

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The MPC statement will be closely watched by the market for any change in BNM’s assessment of the inflation outlook and balance of risks following strong economic growth in the second quarter of 2026.

Prime Minister Anwar Ibrahim has separately announced six measures that took effect on Sept. 1 to reduce pressure on living costs and businesses. The measures include restoring the BUDI95 RON95 fuel subsidy quota to 300 litres a month and raising the BUDI Diesel quota to 400 litres for eligible pickup and four-wheel-drive owners.

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The government also increased school maintenance funding for 2027 by 50% to RM1.5 billion, provided eligible Malaysian youths aged 18 to 30 with three months of free artificial intelligence subscriptions and allocated RM1 billion for public healthcare digitalisation.

The package also raises school maintenance funding for 2027 by 50% to RM1.5 billion, offers eligible Malaysians aged 18 to 30 three months of free artificial intelligence subscriptions and allocates RM1 billion to digitise public healthcare. The government also raised the e-invoice exemption threshold from RM1 million to RM3 million and expanded microfinancing support by RM1 billion.

CIMB Securities said the measures came as Malaysia’s fiscal position remained firm. The accumulated deficit for the first seven months of 2026 stood at RM47 billion, or 2.2% of gross domestic product, compared with RM46.7 billion, or 2.3% of GDP, during the same period last year. Malaysian Government Securities faced selling pressure for a seventh consecutive week, with 10-year yields rising eight basis points to 3.86% as the market absorbed a bond issuance schedule weighted toward maturities of 10 to 30 years.

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Upward pressure on MGS yields continued as the market absorbed a government issuance schedule heavily weighted toward long-duration securities.