In less than a week, Bank Negara Malaysia (BNM) will announce its interest rate decision. The central bank is widely expected to keep its benchmark Overnight Policy Rate (OPR) unchanged at 2.75%. This decision comes against a significantly improved macroeconomic backdrop, anchored by the newly signed Reciprocal Trade Agreement (ART) with the United States. Octa broker analysts believe that this trade deal provides a powerful tailwind for Malaysia's growth, which, combined with robust export figures and healthy manufacturing sentiment, gives the BNM ample justification to maintain its wait-and-see approach to monetary policy. This setup could support further ringgit appreciation, although external risks remain.
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On Thursday, 6 November, BNM will conclude its monetary policy meeting, with a decision on the OPR expected in the afternoon. After cutting rates for the first time in five years back in July, the central bank has since held the OPR steady at 2.75%. Its September statement was interpreted by markets as less dovish, signalling a pause in easing as the central bank hinted that more time was needed to assess the incoming data. Now, a U.S.–Malaysia trade deal has likely cemented BNM's decision to stay on hold. However, even before the agreement was reached, there was plenty of evidence that BNM was unlikely to turn dovish.
Manufacturing and industrial output
Industrial production expanded by 4.9% year-on-year (y-o-y) in August, surpassing the 3.4% growth economists had predicted and signalling healthy factory output across key sectors. Indeed, manufacturing, a cornerstone of Malaysia's economy, is on a firm footing, as evidenced by the latest S&P Global Malaysia Manufacturing Purchasing Managers' Survey. Although the Purchasing Managers' Index (PMI) was just below the neutral 50.0 mark at 49.8, the overall survey pointed to stabilising conditions and rising optimism. The report noted that 'total new orders rose for the second successive month during September… Where new orders rose, firms mentioned new project launches and higher client confidence, notably in the domestic economy'. This suggests gradual improvements in aggregate demand, despite a softening of export orders in some international markets such as the U.S., Europe, and the Asia-Pacific region.
International Trade
Malaysia's external sector has been a bright spot, with September export figures showing a 12.2% y-o-y increase, well above the 3.4% forecast. This followed a more modest 1.9% rise in August, which fell short of expectations due to declines in petroleum shipments, but overall trade momentum has built up. Imports also climbed in September but only by 7.3% y-o-y, contributing to a trade surplus of 19.9 billion ringgit ($4.7 billion). These robust external accounts, fueled by global demand for electrical and agricultural goods, support the case for a pause in monetary policy easing by BNM.
Domestic inflation
Malaysian inflation has ticked up modestly, with the Consumer Price Index (CPI) rising 1.5% year-over-year (y-o-y) in September, slightly above the 1.4% median forecast and up from 1.3% in August. While still low by historical standards—averaging around 1.4% headline and 1.9% core in the first seven months of 2025—this uptick reflects contained cost pressures but enough to warrant caution against premature easing.
Malaysia inflation and interest rate vs. USDMYR exchange rate
New trade deal
The new trade deal between Malaysia and the United States, signed on 26 October 2025 during the ASEAN Summit, has emerged as a key reason why BNM is poised to hold rates steady.
On 26 October, the two countries signed a landmark Agreement on Reciprocal Trade (ART) and a critical minerals pact. This agreement is a game-changer and will now shape Malaysia's near-term economic trajectory. Specifically, ART insulates key sectors of the Malaysian economy, such as manufacturing and electrical goods, from the high U.S. tariff ceilings and grants lower tariffs for 1,711 Malaysian products—including key exports like palm oil, rubber, and electronic components—valued at over $5.2 billion. Analysts at Octa broker project that ATR will help attract additional foreign direct investment (FDI) and boost trade volume between the two nations, potentially elevating Malaysia's Gross Domestic Product (GDP) growth rate by around 0.3–0.5 percentage points annually through 2030.
By enhancing export capacity and reinforcing Malaysia's role in global supply chains, the agreement mitigates some of the downside risks from the recent trade-related uncertainties, allowing the central bank to monitor developments without taking immediate action. Combined with elevated inflation, positive manufacturing signals, and rising exports, the deal creates a conducive environment for maintaining the current monetary policy stance.
The new trade deal with the United States has also catalysed ringgit (MYR) strength: the currency opened higher post-deal, trading at around 4.21 against the U.S. dollar (USD), and later headed below the critical 4.20 mark. If the positive sentiment holds, USDMYR may potentially re-test last year's low near 4.120, Octa analysts note.
On balance, Octa broker agrees with the market consensus, arguing that the combination of solid domestic growth, buoyant exports, healthy manufacturing, and a supportive trade environment removes any immediate need for an interest rate cut. The BNM's likely decision to hold rates flat provides a moment of stability for now, but the market's focus will soon pivot to future data releases and geopolitical developments.
Disclaimer: This article does not contain or constitute investment advice or recommendations and does not consider your investment objectives, financial situation, or needs. Any actions taken based on this content are at your sole discretion and risk—Octa does not accept any liability for any resulting losses or consequences.
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