By Ying Xian Wong


KUALA LUMPUR--Malaysia's central bank once again left rates on hold as economic stability gave it room to keep policy settings steady even as Middle East tensions flare.

Bank Negara Malaysia on Thursday left its overnight policy rate at 2.75%, extending a pause stretching back to July last year, when it delivered a 25-basis-point cut due to threats to the economy from external uncertainties.

All nine economists polled by The Wall Street Journal had expected the central bank to stand pat.

"At the current OPR level, the MPC considers the monetary policy stance to be appropriate and consistent with the outlook of continued price stability and sustainable economic growth," BNM said in a statement.

The latest economic indicators point to resilient growth in the second quarter, supported by sustained domestic demand and stronger-than-expected exports, the central bank said.

BNM expects Malaysia's strong fundamentals--including steady employment, wage growth and ongoing public and private investment--will help cushion the economy against external shocks, while resilient electrical and electronics exports, a recovery in non-electronic shipments and tourism should support growth.

It continues to project 2026 economic growth of 4% to 5%, although risks remain from prolonged Middle East tensions and weaker commodity production.

While higher global commodity prices could lift inflation, BNM expects their impact on headline and core inflation to remain contained, as domestic policy measures and stable demand conditions help prevent external cost pressures from being passed to consumers.

Central banks across the region have taken different approaches as inflation and economic conditions evolve. Many have tilted more hawkish in the first quarter as the Iran war drove up oil and gas prices, opting to stave off an inflation shock at the risk of stymieing growth.

A U.S.-Iran truce dialed back expectations of further rate hikes but a fresh resurgence of hostilities recently underlines the fact that geopolitical headwinds are far from over.

Looking ahead, Capital Economics expects the recent flare-up in the Middle East conflict won't have a major effect on Malaysia's economy, as AI-driven investments and exports are expected to keep growth resilient in coming quarters.

"Accordingly, the central bank is under no pressure to reduce interest rates to support demand," CE senior Asia economist Gareth Leather said in a note.

Coupled with steady inflation, BNM could hold rates unchanged throughout 2026 and 2027, CE added.

Echoing the same view, iFast research assistant manager Alwyn Chew Chuan Shyn expects BNM to leave interest rates unchanged through the year as growth remains steady and inflation stays contained.


Write to Ying Xian Wong at yingxian.wong@wsj.com


(END) Dow Jones Newswires

07-09-26 0349ET