Kota Kinabalu (Dec 13) - The recent interest rate cut by the United States Federal Reserve has narrowed the interest rate differential between the US and Malaysia, but it is unlikely to trigger an immediate shift in Malaysia’s monetary policy, analysts say.
The Fed’s decision to lower its benchmark rate has reduced the gap between US interest rates and Malaysia’s Overnight Policy Rate (OPR), which currently stands at 2.75%. In previous tightening cycles, a wide interest rate differential often placed pressure on emerging market currencies, including the Malaysian ringgit, as global investors favoured higher returns in the US. The narrowing gap now eases some of that pressure.
However, Bank Negara Malaysia (BNM) is expected to maintain its policy stance, prioritising domestic economic conditions over external monetary moves. Economists note that Malaysia’s inflation remains manageable, while economic growth continues at a steady pace, reducing the urgency for any policy adjustment.
“The Fed’s rate cut provides Malaysia with greater policy flexibility, but it does not automatically translate into a local rate cut,” analysts said. “BNM’s decisions remain data-dependent, focusing on domestic growth, inflation trends and financial stability.”
A smaller interest rate differential could also help stabilise capital flows. With US yields easing, Malaysian assets may appear relatively more attractive, potentially supporting the ringgit and reducing volatility in financial markets. This environment allows BNM to focus on sustaining economic momentum without being overly constrained by global monetary tightening.
For borrowers, the Fed’s move does not mean lower lending rates in Malaysia in the near term, as local borrowing costs are tied to the OPR. For savers, deposit rates are also expected to remain largely unchanged unless BNM signals a policy shift.
Overall, while the US Fed’s rate cut has improved external conditions for Malaysia, the country’s monetary policy is set to remain guided by local economic fundamentals rather than global rate movements alone.