United Overseas Bank (UOB) expects Bank Negara Malaysia to maintain the overnight policy rate (OPR) at three per cent in the near term, despite inflation easing to a four-year low in March.
In a note today, UOB said headline inflation slowed to 1.4 per cent year-on-year in March, down from 1.5 per cent in February. This is the lowest rate since February 2021, and below both its forecast of 1.5 per cent and the Bloomberg consensus of 1.6 per cent.
The moderation was largely due to softer price gains in non-food items such as utilities, household equipment and restaurant and accommodation services, while food prices held steady.
UOB, however, maintained its full-year inflation forecast at 2.3 per cent, citing expectations of a gradual pickup in the second half of the year due to base effects and potential changes in domestic price policies.
This compares with Bank Negara’s 2025 estimate of two per cent to 3.5 per cent.
“The global situation remains fluid as trade negotiations and policy outcomes are ongoing,” it said. “Meanwhile, we see sustained positive growth for Malaysia, albeit slower than earlier projected in view of tariff risks and uncertainties.”
The bank noted that businesses have called on the government to delay some fiscal reforms including subsidy cuts, electricity tariff hikes and expanded sales tax,citing potential pressure on operating costs following US tariff announcements.
UOB added that subdued demand and stable financial conditions will allow Bankl Negara to take a “wait-and-see” approach, particularly with no signs of demand-driven inflation.
The bank believes the outcome of tariff negotiations and any further trade actions by the US and China will be key factors in shaping monetary policy decisions in the second half of 2025.
“Since last week, markets have started to price in potential OPR cuts by 25 to 75 basis points in the remaining months of the year. This is partly due to the lower-than-expected advance 1Q25 GDP estimate released last Friday.
“We believe Bank Negara will remain patient in its monetary policy while awaiting more clarity from official trade talks with the US administration in the coming months, before carefully assessing the impact from the global trade war on the local economy.” it added.
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