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By Danial Azhar
KUALA LUMPUR (Reuters) - Malaysia's central bank kept its benchmark interest rate unchanged on Thursday, expecting economic activity to remain strong this year and inflation manageable, but it warned of increasing risks to the global economy.
Bank Negara Malaysia (BNM) maintained its overnight policy rate at 3.00%, the same level since May 2023, and in line with market expectations that the central bank will hold rates steady through this year.
"Despite external uncertainties, the strength in economic activity is expected to be sustained in 2025, anchored by domestic demand," the central bank said in a statement.
Regional peers, such as Bank Indonesia, the Bank of Thailand, and the Philippine central bank, have cut rates to support sluggish growth.
Malaysia's government and central bank have forecast the economy to expand between 4.5% and 5.5% in 2025, following 5.1% growth in 2024.
"However, the outlook for global growth, inflation and trade is subject to considerable uncertainties surrounding tariffs and other policies from major economies and geopolitical developments," the central bank said.
BNM expects Malaysia's inflation rate to remain manageable in 2025 amid easing global prices and the absence of excessive domestic demand pressures. Headline and core inflation stood at 1.7% and 1.8% respectively in January, it said.
The inflationary impact from recently introduced wage policies is expected to be limited, but further domestic policy changes, global commodity prices, financial markets, and trade policies could be potential risks, BNM said.
Analysts at Capital Economics do not expect any changes to Malaysia's monetary policy this year, but cautioned that inflation was likely to increase following planned cuts in some fuel subsidies, expected in the middle of the year.
"The changes will likely push the headline rate above 3% next year," Gareth Leather said in a note. "Although BNM does not have an explicit target, inflation over 3% year-on-year would be outside what we consider to be the central bank’s comfort zone."
While financial markets could face increased volatility, the central bank said a favourable domestic outlook and structural reforms would help support Malaysia's ringgit currency.
(Reporting by Danial Azhar; Editing by John Mair and Rachna Uppal)
