Bank Negara May Consider Lowering OPR as Counter-Cyclical Measure Amid Potential Growth Risk

Bank Negara Malaysia (BNM) may consider lowering the overnight policy rate (OPR) by 25 basis points (bps) as a counter-cyclical measure should signs of growth weakness emerge in the coming months, said Hong Leong Investment Bank (HLIB) today.

The investment bank said the weaker global economic trend combined with a relatively modest inflationary environment in Malaysia could give the central bank the room to act if necessary.

"We do not think BNM will act in a pre-emptive manner but adopt a wait-and-see stance until firmer evidence of growth slowdown develops," HLIB said in a research note today.

In addition, it noted that Malaysia's position as one of the less affected countries by the United States (US) tariff hike may help buffer domestic sentiment, especially if regional peers experience more pronounced slowdowns and have tighter monetary policy stances.

However, continued monitoring of employment, investment, and external demand would be key to determining the appropriate policy stance, HLIB said.

Malaysia has been hit with a 24 per cent tariff on its exports to the US, its third largest export partner, accounting for an average of 7.2 per cent of gross domestic product for 2011-2024.

Key Malaysian exports to the US include electrical and mechanical machinery, medical instruments, rubber, furniture, oil, plastics, iron and steel, aluminium and cocoa products.

These categories comprise 90 per cent of Malaysia's total exports to the US, with electrical and electronic (E&E) products comprising nearly 70 per cent.

In anticipation of the tariffs, HLIB noted that corporates have been front-loading imports since US President Donald Trump took office in January 2025, which is evident from Malaysia's export performance.

Shipments to the US surged by 28.5 per cent year-on-year (y-o-y) in January-February 2025, significantly outpacing the overall export growth of 3.3 per cent y-o-y, largely driven by early purchases of E&E products, particularly semiconductor devices and integrated circuits.

"This front-loading is expected to at least continue through the final month of the first quarter (1Q) of 2025, ahead of the 24 per cent tariffs coming into effect on April 9, at the start of the 2Q of 2025," HLIB said.

To help mitigate the impact of tariffs, the investment bank said Malaysia could consider increasing imports from the US while simultaneously diversifying its export markets.

"There are immediate opportunities in areas where Malaysia already imports substantial volumes from the US and could feasibly scale up purchases to help narrow the trade gap," it added.

- BERNAMA

$HLBANK / 5819 (HONG LEONG BANK BERHAD)