BNM Expected To Cut Interest Rates In 2H25 Amid Slowing Growth And Tariff Pressures

Samuel Chua

19th May 2025 - 2 min read

Investment banks are anticipating that Bank Negara Malaysia (BNM) will reduce the Overnight Policy Rate (OPR) by 25 basis points (bps) in the second half of 2025, following weaker economic performance in the first quarter and disruptions linked to tariffs.

Public Investment Bank Bhd noted that the earlier 100 bps cut to the Statutory Reserve Requirement (SRR) is likely to act as a timely liquidity buffer. This measure should enable BNM to maintain a data-driven approach in the face of heightened global volatility.

If the 90-day tariff suspension is not extended, resulting in Malaysia’s effective tariff exposure rising to 24%, the bank anticipates a more proactive policy response. This would likely take the form of two OPR reductions of 25 bps each during the latter half of the year, aimed at offsetting the adverse effects on trade, investment, and overall economic sentiment.

There are three remaining monetary policy meetings scheduled for the year, on 9 July, 4 September, and 6 November. According to the bank, BNM retains the flexibility to adjust its policy in response to incoming economic data and the evolving state of global trade negotiations.

Hong Leong Investment Bank also pointed to persistent external uncertainties and subdued inflation as factors supporting the case for a rate cut.

Meanwhile, Standard Chartered (StanChart) maintained its expectation that BNM will lower the OPR by 25 bps in July. Additional reductions may follow in 2025 should the economic outlook worsen more than anticipated. The bank revised its 2025 GDP growth forecast downward, from 5.0% to 4.2%, citing weaker-than-expected first-quarter performance and the likely effects of tariff impositions.

StanChart estimated that reciprocal tariffs of 24% and 10% could reduce GDP by 0.7 and 0.4 percentage points, respectively, assuming 30 percent of Malaysian exports are exempt and applying a U.S. import elasticity of 0.5 times. It also warned that softer demand from trade partners could further drag on growth in the coming year.

Despite these headwinds, the bank remains confident that consumer spending and investment will continue to underpin Malaysia’s economic expansion in 2025.

(Source: The Star)

Samuel Chua

Samuel writes about personal finance and financial news, focusing on how banking updates, policies, and promotions affect everyday money decisions. He enjoys making complicated financial topics easier to follow. Outside of writing, he spends his time watching TV shows and occasionally convincing himself he will only watch one episode.

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