KUALA LUMPUR, Sept 8 — The following is the transcript of Bernama’s email interview with Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour on the Overnight Policy Rate (OPR).
1. Governor, can you guide us through the Monetary Policy Committee’s (MPC) decision on the OPR last week?
The MPC decided to maintain the OPR at 2.75 per cent at our meeting on September 4 last week. At the current OPR level, our monetary policy stance is appropriate and supportive of the economy amid price stability.
We expect the earlier pre-emptive OPR reduction in July will provide additional lift to growth for the rest of 2025 and into 2026.
The MPC will continue to monitor global developments, particularly those surrounding trade and geopolitics, while assessing the balance of risks for our growth and inflation outlook.
2. Several major developments have taken place since the recent MPC meeting in July, including the United States (US) tariff outcome for Malaysia. What is the MPC’s latest assessment for domestic growth?
The Malaysian economy expanded by 4.4 per cent in the first half of the year and is on track to grow between our forecast range of 4.0 per cent to 4.8 per cent in 2025. Moving forward into 2026, growth will continue to be supported by resilient domestic demand.
Steady employment and wage growth, as well as income-related policy measures, such as the salary increment for civil servants and a higher minimum wage, are expected to continue supporting household spending.
Recent measures announced by the government will further encourage domestic consumption.
The continued expansion in investment activity that we are seeing will also lend support to growth moving forward.
Despite elevated global uncertainties, Malaysia has a healthy pipeline of planned investments. Indeed, the latest approval numbers by the Malaysian Investment Development Authority (Mida) point towards sustained investment momentum, with approvals in the first half of 2025 experiencing an 18.7 per cent year-on-year increase.
Additionally, the continued implementation of multi-year public projects together with a high realisation of approved private investments will help raise our future economic prospects. All these factors will help cushion us against external shocks.
The announced tariff rate of 19 per cent, which is slightly lower than that previously announced, will now provide some clarity, allowing businesses to plan ahead better.
Amidst moderating export growth and uncertainties surrounding sectoral tariffs, we expect demand for our electrical and electronic (E&E) products to continue, underpinned by resilient demand, emerging opportunities in artificial intelligence (AI), alongside increased digitalisation.
Higher tourist arrivals and spending in the lead up to Visit Malaysia 2026 (VMY2026) should also similarly cushion our exports.
The overall outlook, however, is subject to uncertainties, particularly surrounding the global economy. Downside risks to the growth outlook stem from slower trade growth, weaker sentiment and lower-than-expected commodity production.
But it is also not all downside. Favourable outcomes from remaining US trade negotiations, pro-growth policies in major economies, continued demand for E&E goods, and robust tourism activity stand to raise Malaysia’s export and growth prospects.
3. What is the MPC’s outlook for inflation, considering the recent domestic policy changes?
Headline and core inflation averaged 1.4 per cent and 1.9 per cent in the first seven months of the year, respectively.
The moderation in headline inflation has so far been primarily driven by further declines in prices for non-core items, particularly fresh food and fuel.
For example, prices for fresh vegetables and eggs have declined since the first quarter of this year. More recently, fuel prices such as for RON97 and diesel have also come down, following softer global commodity prices.
Looking ahead, we expect the easing trend in global commodity prices to continue contributing to moderate domestic cost conditions. As such, headline inflation is projected to remain moderate for the rest of the year and into 2026.
In line with our growth outlook, domestic demand will remain supportive of the economy whilst not generating excessive inflationary pressures. Core inflation is therefore expected to remain stable and close to its long-term average. This trend is also expected to continue going into 2026.
In this environment, we expect the overall effects of the announced and upcoming domestic policy reforms on inflation, such as the Sales and Service Tax (SST) expansion and revised electricity tariffs, to remain contained. This is further supported by the measure's targeted design, which will cushion the impact on most households.
4. Official inflation figures are low, and yet cost-of-living remains an area of concern for Malaysians. Governor, can you share insights on this?
Thank you for raising this. Cost-of-living pressures are indeed real and felt by many. This issue remains a key focus of our broader policy considerations.
Both our official inflation figures — headline and core — are based on the Consumer Price Index (CPI), which tracks a weighted average of the prices of goods and services that Malaysians typically consume.
Changes in the CPI reflect changes in the overall cost of this representative "basket" of items over time, showing how prices are increasing or decreasing for households. It is designed as a common benchmark to allow policymakers to understand the overall trend in prices.
But of course, individual spending patterns may vary. This can influence how inflation is experienced across different segments of Malaysians. Food, as a key component within the household consumption basket, is a clear example of this. Food prices can differ due to factors like location, dietary habits, choice of products and access to retailers.
In city centres, prices are generally higher because of higher operating costs as well as demand factors that allow businesses to charge more. As a result, urban households often feel food-related cost pressures more than rural ones.
While CPI inflation is typically measured as the year-on-year change in price levels, it captures price changes compared to the same period last year and not the cumulative increase over multiple years.
So even if inflation is moderate this year, price levels may still be high due to past increases.
Cost-of-living, on the other hand, depends on how high overall price levels are relative to income. When prices continue rising over time, people tend to remember the bigger jumps from previous years. And if income does not keep pace, it becomes harder for households to afford the same goods and services.
This is why inflation is only one part of the cost-of-living issue. Beyond keeping inflation low, wage growth plays a key role in alleviating cost-of-living pressures. Cost-of-living is the total expense households need to maintain a certain standard of living.
When income grows steadily and sustainably, households are then better able to manage the impact of rising prices. This needs to be one of the core outcomes of our nation’s development goals, and it underscores the importance of Malaysia’s structural reforms.
Ultimately, what the country needs is more quality, and hence, high-paying jobs. For this to happen, we need to continue attracting quality investments.
This is why we need effective implementation of measures to attract high-value investments, such as the New Industrial Masterplan (NIMP) 2030, the National Energy Transition Roadmap (NETR), and the 13th Malaysian Plan (13MP) to expand Malaysia’s productive capacity — the maximum output a country can produce given its resources — alongside leveraging AI and digitalisation to drive increased productivity, which refers to how efficiently those resources can be used.
Indeed, more than 30,000 skilled jobs were created in 2024 (25.4 per cent of total jobs created for the year). This is a good start, but there is still a lot more we must do and achieve.
5. Can we expect more rate cuts for the remainder of 2025?
We understand many are keen to know more about this. Let me explain — our OPR cut in July was in itself a pre-emptive move to preserve Malaysia’s steady growth trajectory amid external uncertainties.
At the current OPR level, the MPC considers the stance of monetary policy to be appropriate and supportive of the economy amid price stability. Our current focus is on assessing the impact of the OPR cut on economic activity, which we expect will provide additional lift through the rest of 2025 and into 2026.
Overall, growth will continue to be supported by resilient domestic demand. Moving forward, the MPC will continue to monitor ongoing developments and assess the balance of risks surrounding the outlook for domestic growth and inflation.
