KUALA LUMPUR: Bank Negara Malaysia (BNM) has room to adjust interest rates if inflationary pressures intensify, particularly if the prolonged conflict in the Middle East keeps global energy prices elevated, Governor Datuk Seri Abdul Rasheed Ghaffour said.
Speaking to Bloomberg TV on Thursday, Rasheed said the central bank was closely monitoring price increases and stood ready to respond if inflation risks increased.
“We do have space for us to act accordingly,” he said, adding that monetary policy decisions would remain data-dependent.
BNM maintained its overnight policy rate (OPR) at 2.75% in September but removed its previous description of the policy stance as “appropriate”. The change has prompted market speculation that a rate increase could be possible.
According to Bloomberg data, interest-rate swap traders were pricing in a 76% probability of a rate hike within the next six months as of Thursday.
Rasheed said the current policy rate remained consistent with Malaysia’s inflation outlook and the objective of supporting sustainable economic growth.
Despite rising global oil prices, Malaysia’s inflation has remained moderate, partly due to government fuel subsidies. The country’s position as a net energy exporter has also helped cushion the impact of higher energy costs.
The government expects inflation to average between 1.5% and 2.5% in 2026, following an annual increase of 1.9% in consumer prices in August. However, a prolonged Middle East conflict and persistently high energy prices could pose further risks.
Inflation is expected to rise in early 2027 as higher energy, food and other input costs filter through the economy before easing later in the year. The government forecasts inflation of between 1.8% and 2.8% for 2027.
On economic growth, Rasheed said Malaysia’s diversified economic structure and strong domestic demand would support expansion of around 5% this year.
The government recently raised its 2026 gross domestic product growth forecast to between 4.8% and 5.3%, from its earlier projection of 4% to 5%. Growth of between 4.2% and 5.2% is expected in 2027.
Strong semiconductor exports have also helped support the economy despite global uncertainties. Rasheed said companies producing electrical and electronics products had reported a significant increase in order books, extending from around five to six months previously to between 12 and 18 months.
He acknowledged risks associated with a potential slowdown in the artificial intelligence boom but said demand for Malaysia’s electrical and electronics products remained strong.
Meanwhile, the ringgit has remained resilient against the US dollar, supported by healthy two-way market flows. BNM continues to encourage businesses, exporters and investors to repatriate and convert their foreign-currency earnings.
Rasheed said the outlook for Malaysian bonds would depend on global developments, including the duration of the Middle East conflict, US inflation and fiscal risks. Although bond yields have experienced greater volatility, their movements have remained orderly.
He added that Malaysia’s resilient economic growth, strong fundamentals and consistent policies continued to support investor confidence amid an uncertain global environment.
-THESTAR
