Malaysia keeps policy rate at 2.75% as expected, keeps eye out for Iran war strains

KUALA LUMPUR (May 7): Malaysia’s central bank kept the benchmark interest rate unchanged on Thursday as expected while keeping a close eye on the ongoing geopolitical conflict in the Middle East.

The overnight policy rate is maintained at 2.75% following the third of six scheduled reviews for the year, Bank Negara Malaysia (BNM) said in a statement on Thursday. The move was correctly predicted by all 25 economists polled by Bloomberg.

BNM “acknowledges the uncertainties from the ongoing conflict in the Middle East” though the current rate is “appropriate and consistent with the outlook of continued price stability and sustainable economic growth”, the central bank said.

The central bank has stood pat at every scheduled review since cutting the policy rate by 25 basis points in July last year, drawing comfort from a resilient economy and benign inflation. BNM’s latest forecasts calls for the economy to expand between 4.0% and 5.0% in 2026 and for inflation to average between 1.5% and 2.5%.

Malaysia’s economy has held up in the first three months of the year, an advance estimate showed, even as the geopolitical conflict in the Middle East raged on. Inflation, meanwhile, remained broadly steady for consumers shielded by a system of fuel subsidies and price control on essential goods.

“Moving forward, uncertainties surrounding the duration and severity of the Middle East conflict will affect the outlook of domestic growth and inflation,” BNM said. “Nevertheless, Malaysia’s strong fundamentals will continue to underpin the economy’s resilience.”

Inflation may “edge higher” as domestic cost pressures swell from global commodity price increases, the central bank flagged, with the Iran war in its third month.

Still, the impact on both headline and core inflation in 2026 is expected to remain “contained” thanks to “domestic policy measures and stable demand conditions, which will mitigate the pass-through of external cost pressure”, BNM added.

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