KUALA LUMPUR (July 20): Bank Negara Malaysia (BNM) could eventually consider reversing last year’s interest rate cut if Malaysia’s strong economic growth persists and higher oil prices add to inflationary pressure, according to MARC Ratings.
While MARC expects the overnight policy rate (OPR) to remain unchanged under its baseline scenario, it said a return to the level prevailing before the pre-emptive rate cut in July 2025 could be considered over time.
“On the monetary policy front, MARC’s baseline expectation is for the OPR to remain unchanged.
“However, ongoing geopolitical risks could keep oil prices elevated and pressure inflation. Additionally, amid strong GDP (gross domestic product) growth, a reversion to the OPR level that prevailed before the July 2025 pre-emptive rate cut may be considered over time.”
MARC upgraded in a note its 2026 GDP growth forecast to 5.1% from 4.4% for Malaysia, following strong economic growth in the first half of the year. It maintained an upward bias to the forecast should the momentum continue into the third quarter.
Malaysia’s growth is expected to be supported by accelerated supply-chain investments, infrastructure development, stronger tourism and hydrocarbon exports, alongside sustained foreign direct investment, semiconductor and artificial intelligence-related investments and resilient private consumption.
Meanwhile, MARC revised its end-2026 ringgit forecast to between 4 and 4.15 against the US dollar, from 3.98 to 4.07 previously, following a shift towards expectations that US interest rates will remain higher for longer.
A wider yield differential between Malaysian government bonds and US Treasuries in favour of the US could limit the ringgit’s gains, although record exports and continued foreign investment inflows are expected to support the currency.
MARC also expects Malaysia to continue attracting foreign bond inflows in the second half of 2026, although a more hawkish US Federal Reserve could slow the pace of inflows.
Malaysian Government Securities yields are expected to remain broadly stable at between 3.6% and 3.7% by year end, even as government bond yields across most regional markets remain biased upwards amid inflation and tighter monetary policy expectations.