Malaysia’s central-bank governor keeps options open as inflation risks rise

Bank Negara Malaysia has room to adjust interest rates if inflation pressures strengthen, Governor Abdul Rasheed Ghaffour said in an October 15 Bloomberg TV interview carried by The Business Times. He linked that flexibility to a change in the central bank’s September guidance, rather than announcing a fresh rate decision.

BNM retained its main rate at 2.75% at the September meeting while dropping its previous description of the policy stance as appropriate. Rasheed said the current rate remained consistent with the outlook for inflation and sustainable growth. The monetary policy committee would assess the latest data at each meeting.

The distinction matters for investors who read the wording as creating an opening for a rate increase. Bloomberg reported that interest rate swaps implied about a 76% probability of an increase within six months. These contracts exchange streams of interest payments, and their prices can reflect expectations for future rates. The figure represents market pricing, not a promise from the committee.

Rasheed identified it as the market’s assessment during the interview on the sidelines of the IMF and World Bank meetings in Bangkok. His message was that the bank could act if conditions required it, while keeping the actual decision dependent on incoming information.

Malaysia’s annual inflation rate was 1.9% in August. The government expects inflation to average 1.5–2.5% this year and 1.8–2.8% in 2027. Its outlook anticipates an increase early next year as energy, food and other input costs reach prices, followed by an easing later in the year.

Rasheed said inflation should stay within this year’s forecast range, but a prolonged Middle East conflict and elevated energy costs remain risks. Government support that restrains local fuel prices has helped keep inflation moderate. Malaysia’s net energy-exporter position also provides a cushion against the import-cost pressure facing neighbours such as Thailand and the Philippines.

Strong domestic demand and semiconductor exports have supported the economy amid disruption from the US war against Iran. The government last week lifted its 2026 growth forecast to 4.8–5.3% from 4–5%. It forecasts expansion of 4.2–5.2% in 2027, supported by domestic demand and investment.

The governor expects growth around 5% this year. He cited Malaysia’s varied economic drivers and trading partners as buffers, while acknowledging that a small, open economy would still be affected by prolonged fighting.

He also recognised the risk of a slower artificial-intelligence boom, but said demand for the country’s electrical and electronics products remained strong. From discussions with businesses, he said order books now stretch across 12–18 months, compared with roughly six months five months earlier.

The ringgit has gained about 0.6% against the US dollar this year after a 10% rise in 2025, while the Indonesian rupiah and Philippine peso have reached record lows. Rasheed described healthy two-way market flows and said BNM continues encouraging businesses, exporters and investors to repatriate and convert foreign earnings.

Government bonds have been more volatile. The high-to-low yield range for the 10-year bond was 23–27 basis points in September and October, compared with an average around 10 basis points in the first eight months of 2026. Rasheed said the repricing was orderly, with the outlook shaped by the conflict’s duration and US inflation and fiscal risks.

The interview also touched on investor confidence ahead of a possible election. Bloomberg reported that Prime Minister Anwar Ibrahim was considering a vote in the second half of 2027, before polls otherwise due by February 2028. Rasheed stressed policy consistency, economic fundamentals and income policies supporting growth as attractions for investors.