Malaysia’s exports sustained their exceptional momentum in August, rising 45.5% y-o-y to RM191.0 billion (July: 38.0%). Electrical and electronics exports remained the main engine of growth, surging 66.5% to RM92.5 billion, while exports to the US reached a record RM37.5 billion. Although wholesale and retail trade volume growth moderated to 4.1% in July, mainly reflecting slower wholesale activity, and industrial production growth eased to 4.7% on weaker mining output, manufacturing held firm at 6.4%, keeping external demand as the key anchor of growth.

Headline inflation edged up to 1.9% in August (July: 1.8%), led by higher transport and housing-related costs, while core inflation eased to 1.7% (July: 1.8%). Following renewed disruptions to Middle Eastern oil supplies, including the mid-September shutdown of Saudi Arabia’s East–West pipeline, MARC Ratings has revised its 2026 Brent crude oil price forecast. It now projects an average of USD90–USD100 per barrel (previously: USD80–USD90 per barrel). With subsidised RON95 pricing limiting direct pass-through of higher fuel prices, MARC Ratings maintains its 2026 inflation forecast at 1.9%.

As of month-to-date (MTD) 23 September, the ringgit had depreciated by 1.36% to 4.08 USDMYR (end-August: 4.03 USDMYR), reversing most of its August gains. The move tracked broad US dollar strength after the Federal Reserve raised the federal funds rate by 25 bps to 4.00% (upper bound) on 16 September. The 10-year Malaysian Government Securities – US Treasury (MGS–UST) yield differential consequently widened to -122 bps (end-August: -88 bps). Nevertheless, resilient growth, robust exports and sustained foreign direct investment inflows should provide support, and MARC Ratings maintains its ringgit forecast at 4.00–4.15 USDMYR by end-2026.

Foreign investors bought a net RM15.9 billion of ringgit-denominated debt securities in August (July: -RM5.6 billion), the largest monthly inflow since September 2013. This lifted foreign holdings of MGS and Government Investment Issues to 20.6% of outstanding securities (July: 20.1%). The timing is consistent with investors locking in higher entry yields, as the 10-year MGS yield rose 16.1 bps in August while the 10-year UST was unchanged. In contrast, foreign investors sold a net RM2.0 billion of Malaysian equities (July: +RM0.2 billion). In September, global rate hikes and a wider MGS–UST yield differential in favour of the US could result in net foreign outflows from ringgit debt, although demand for Malaysian assets should remain firm through 2026.

MGS yields rose by 2–10 bps across the curve as of MTD 23 September, led by the five-year yield at 3.70% (+10 bps). The 10-year yield rose 2 bps to 3.89% MTD, reversing slightly from 4.18% in mid-September, its highest level since November 2022. The sell-off reflected higher global yields as major central banks resumed tightening, alongside firmer expectations of an Overnight Policy Rate (OPR) hike. Bank Negara Malaysia held the OPR at 2.75% on 3 September but no longer described its policy stance as “appropriate”. While MARC Ratings sees room for the OPR to normalise upwards, the swap-market pricing of close to 50 bps in hikes over the next 12 months appears excessive, leaving room for yields to stabilise in the near term. MARC Ratings maintains its 10-year MGS yield forecast at 3.75%–3.85% for end-2026. However, further global rate hikes and anticipated higher debt levels under Budget 2027 could temporarily keep yields above this range.