Moody’s: BNM likely to hold OPR at 3%, September cut dependent on inflation and Fed's move

KUALA LUMPUR (May 13): Bank Negara Malaysia’s (BNM) move to lower the statutory reserve requirement (SSR) has set the stage for a possible overnight policy rate (OPR) cut, but according to Moody’s Analytics, two key conditions must first be met. 

These include headline inflation staying below 3% year-on-year after the implementation of the RON95 targeted subsidy and the US Federal Reserve (Fed) resuming its easing cycle. Moody’s expects the OPR to remain at 3% until August, with a potential 25-basis-point (bps) cut to 2.75% in the September meeting, provided that these factors materialise. 

"However, if the Fed stays on hold for longer, or the unwinding of fuel subsidies sends inflation too high, BNM may be content to keep the OPR at 3%,” it noted.

BNM’s move to slash the SSR to a 14-year low of 1% released RM19 billion in bank liquidity. Moody’s in a note said this bought the central bank time to scout the impact of US tariffs as well as whether the impending subsidy-driven bump in inflation will be one-off.

“The extra liquidity in the system will keep money market rates soft and ensure that credit flows, while the headline policy rate would protect the ringgit by maintaining the yield advantage,” it noted.  

The Fed’s move to lower its federal funds rate would also be beneficial for Malaysia’s economic growth. “Cheaper global financing would cushion the tariff hit to Malaysia’s export-heavy electronics cluster, and make it easier for firms to roll over debt they took on during the pandemic,” Moody’s said.

“In that environment, a token 25bps cut in the OPR would be more about signalling that the central bank stands ready to act,” it added.

Overall, Moody’s expects both the Fed and BNM to cut their rates in September. It pegs headline inflation to climb to 2.5% by year end and gross domestic product growth to ease to 4% in 2025 (5% in 2024) and 3.9% in 2026.

“Domestic demand will remain the economy’s main engine, drawing power from civil service pay rises and the construction of the East Coast Rail Link. The drag from net exports will slow but not derail growth,” it noted.  

Credits: Edgeprop.my - Published May 13th 2025 - Izzul Ikram