BNM Assesses Risks, Economic Impact From West Asia Conflict

By Karina Imran and Danni Haizal Danial Donald

KUALA LUMPUR, March 31 (Bernama) -- Bank Negara Malaysia (BNM) is actively assessing the economic impact of the West Asia conflict as the outbreak could last up to six months, affecting oil supplies and energy prices, said Governor Datuk Seri Abdul Rasheed Ghaffour. 

He said the West Asia conflict shows how quickly geopolitical events can spill into energy markets.

bootstrap slideshow

“The impact depends on the duration of conflict, the extent of damage to key infrastructure, in particular, and the degree of disruption to global logistics,” he said at the release of BNM's flagship reports here today.

“How is this transmitted to the world economy? First, higher oil prices and shipping insurance premiums raise costs, pushing inflation higher. Second, supply chain disruptions affect cross-border flows of goods and services, especially critical inputs for key sectors, weighing on growth and trade,” he said. 

Abdul Rasheed added that the financial markets will respond with higher risk aversion and tighter financial conditions. 

bootstrap slideshow

Hence, he said the central bank has developed several scenarios to gauge the possible duration and severity of the conflict, noting that uncertainties remain high given evolving geopolitical developments.

“Our baseline assumes the conflict will last between one and three months, while an optimistic scenario is three to six months, and a pessimistic scenario extends beyond six months,” he said.

Abdul Rasheed added that the central bank is also evaluating the extent of infrastructure damage and broader disruptions, which remain unclear at this stage, as well as their implications on global supply chains.

In terms of oil prices, BNM’s baseline projection is between US$70 and US$90 per barrel, with an optimistic scenario ranging from US$90 to US$100 and a pessimistic outlook of US$110 and above.

He noted that Malaysia’s economic growth projection of 4.0 to 5.0 per cent for the year incorporates the baseline scenario and part of the downside risks.

“But if it were to get worse, into more pessimistic scenarios, of course, anything can happen, but we always evaluate our forecasts.

“We did the same thing last year, given the high uncertainty. When it comes to forecasting, we need to be able to look beyond the noise and consider what the real underlying drivers are,” he said. 

On domestic measures, Abdul Rasheed said ongoing subsidy rationalisation efforts, which include adjustments to electricity, water and diesel subsidies, have strengthened the government’s fiscal position and created buffers to navigate potential external shocks.

He said the recent move on the temporary quota adjustment of the BUDI95 petrol subsidy reflects the government’s commitment towards a more sustainable fiscal position.

He said the target is a fiscal deficit of 4.3 per cent for this year, which is in line with the Fiscal Responsibility Act.

“We need to look at the evolution of these geopolitical events and what the impact is on the global market and on oil prices, and interest rates as well.

“So that’s where all the (government) actions are being coordinated, as of now,” he said.

He added that there is a need to be prudent, to prepare ourselves in the event that things worsen moving forward.

-- BERNAMA