It said the central bank’s assessment of the inflation trajectory will be closely watched, as it now largely hinges on any fiscal adjustments to the government’s RON95 policy.
BNM will issue its statement on the benchmark interest rate following its Monetary Policy Committee (MPC) meeting on May 7.
“Overall, we do not expect BNM to move in either direction in 2026 and 2027. We forecast the policy rate to remain at 2.75%,” HSBC said in a note.
BNM has kept the OPR steady since a 0.25% cut in July 2025, in a move to support growth while keeping inflation in check.
Since the MPC’s last meeting in March, attention has shifted to the fallout from the Middle East conflict despite strong first quarter growth across Asia, including Malaysia, HSBC noted.
“Whether that resilience can hold remains the key question,” it added.
The government’s monthly energy subsidies have surged ten-fold from RM700 million to RM7 billion due to the Iran war, adding pressure on fiscal coffers, including the 2026 deficit target of 3.5% of gross domestic product, the bank said.
The subsidies have lessened the impact of inflationary pressures even as other Asean countries grapple with rising oil prices and fuel shortages. Malaysians meanwhile continue to enjoy RON95 petrol at RM1.99 per litre, with a reduced monthly cap of 200 litres.
This has kept inflation contained, with March inflation at about 1.7% year-on-year, well below Vietnam at 4.7% and the Philippines (4.1%), said HSBC.
BNM projected headline inflation at between 1.5% and 2.5% in 2026 from 1.4% in 2025, reflecting higher external cost pressures amid a more uncertain global environment, in its 2025 Economic and Monetary Review report released end-March.
It noted that while global commodity prices may experience greater volatility, particularly amid ongoing geopolitical tensions in the Middle East, the pass-through to domestic inflation is expected to be contained.
A stronger exchange rate is expected to help moderate imported cost pressures, while targeted policy measures will cushion the impact of higher global prices on consumers and businesses, it said.
The report added that monetary policy “will remain data-dependent”, with decisions on the OPR guided by incoming economic and financial developments.