Bank Negara Malaysia kept its overnight policy rate at 2.75% on Thursday, the last decision of 2026, and said the economy is on track to grow more than 5% this year even as rising energy costs push inflation up.

For investors in Asia, the decision keeps Malaysian borrowing costs unchanged going into 2027 and leaves the ringgit trading on external drivers, chiefly oil and the U.S. dollar, rather than on any change in local rates. The currency closed at 4.0445 per dollar on Thursday evening, up from 4.0610 at Wednesday's close, according to Bernama data published by Malay Mail.

The hold was widely expected by economists, The Star reported. The rate has stood at 2.75% since Bank Negara cut it last year, and a return to 3% would reverse that cut, according to Media Selangor.

What Bank Negara said about growth and inflation

In its statement, the Monetary Policy Committee said recent indicators showed growth stayed strong in the third quarter, driven by exports and steady domestic demand. That momentum should lift full-year 2026 growth above 5%, the bank said.

For 2027, the central bank expects exports to remain the main engine, backed by what it called the ongoing global technology upcycle and firm spending by tourists. A stable job market, continuing investment and measures in Budget 2027 should support household consumption. Malaysia's factories have already shown signs of that tech-driven demand: the S&P Global manufacturing PMI rose to 51.0 in October, its highest since April.

The inflation language was firmer than the growth language. Headline inflation has averaged 1.8% so far this year and core inflation 1.9%, the bank said. It expects both to edge higher in 2027 as geopolitical developments, elevated commodity prices and bad weather add pressure, though it said they should stay contained. The committee said it will "remain vigilant to cost pressures and domestic demand conditions."

On the global economy, the bank said inflation has risen after higher energy costs and is likely to stay elevated as those costs pass through to consumer prices. It listed tighter financial conditions, concerns over market valuations and fiscal weaknesses among the risks to world growth. At home, the main downside risks are a prolonged conflict in the Middle East and lower commodity output. Stronger tech exports and more tourism could lift growth beyond forecasts.

Ringgit gains on oil and the dollar

The ringgit strengthened against the U.S. dollar, the euro, the British pound, the Japanese yen and the Singapore dollar on Thursday, closing at 3.1679 per Singapore dollar from 3.1771. It weakened against the Thai baht, the Indonesian rupiah and the Philippine peso, Malay Mail reported.

Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, said the hold was in line with forecasts. He said a 25-basis-point increase in 2027 should not be ruled out and could come as early as the first quarter, which could give the ringgit further support. He pointed to the U.S. midterm elections as a key driver of market sentiment, with Brent crude falling to $95.12 a barrel and the dollar index easing to 101.423.

Stephen Innes, managing partner at SPI Asset Management, said lower U.S. Treasury yields followed the drop in crude prices. “The currency is taking its cues from external developments rather than domestic monetary policy,” he told Bernama.

How soon could rates rise

Economists are split on whether the next move is up. Innes said a rise to 3% in 2027 should not be ruled out, but described it as a return to normal settings rather than aggressive tightening, and expects the central bank to stay patient into early next year, according to Media Selangor. He said Bank Negara will also watch the direction of U.S. Federal Reserve policy.

Firdaos Rosli, chief economist at AmBank Group, said the strength of growth over the past year gives a legitimate case for normalizing rates, but that growth is unlikely to be strong enough to require a hike, the outlet reported.

The central bank's own wording kept both options open. It said the current rate is consistent with stable prices and sustainable growth, and that it will assess how changing conditions affect the balance of risks to inflation and growth. Households have already received some help on costs through Budget 2027, which raised tax relief and cut rates for middle earners.

Bank Negara published its 2027 calendar with the statement. The first Monetary Policy Committee decision of next year is due on Jan. 21, followed by March 4.