Summary

• Real activity moderated at the start of 3Q2026. Wholesale and retail trade volume growth moderated to 4.1% in July, mainly reflecting slower wholesale activity, while industrial production growth eased to 4.7% on weaker mining output. Manufacturing remained firm at 6.4%, with forward indicators turning more constructive. Approved investments also remained strong at RM218.5 billion in 1H2026, led by data centres, although realised private investment growth moderated to 4.3% in 2Q2026.
• External demand remained exceptionally strong, while inflation picked up modestly. Exports surged 45.5% in August to RM191.0 billion, led by electrical and electronics (E&E) but with strength broadening across other manufactured and mining products; exports to the US and China also reached record monthly highs. Headline inflation edged up to 1.9%, with transport and housing-related pressures rising, although core inflation eased to 1.7%. With MARC Ratings’ Brent crude oil price forecast now averaging USD90–USD100/bbl in 2026, higher external energy costs present some upside risk to inflation, although subsidised RON95 pricing will limit direct pass-through of higher fuel prices.
• The ringgit weakened as renewed global tightening strengthened the US dollar. The ringgit fell 1.36% month-to-date (MTD) to 4.08 USDMYR as of 23 September, reversing most of August’s 1.48% gain, while the US Dollar Index (DXY) rose 1.68%. The move also reflected a weaker Malaysian Government Securities – US Treasury (MGS–UST) yield differential, which narrowed the relative appeal of ringgit assets. However, resilient domestic growth, exports and foreign direct investments (FDI) should provide support, with MARC Ratings’ end-2026 forecast maintained at 4.00–4.15 USDMYR.
• Foreign demand for Malaysian debt securities surged in August, despite softer secondary-market activity. Net foreign purchases of ringgit-denominated debt securities reached RM15.9 billion (July: -RM5.6 billion), the largest monthly inflow since September 2013, lifting foreign holdings of MGS and Government Investment Issues (GII) to 20.6% of outstanding securities (July: 20.1%). Stronger MGS yields relative to USTs likely encouraged yield locking.
• As of MTD 23 September, MGS yields rose by 2–10 bps, led by the front- and mid-ends of the curve. The five-year yield added 10 bps while the 10-year yield rose by only 2 bps, normalising from a sharper yield spike to 4.18% on 11 September, its highest level since November 2022. By mid-September, swap markets were pricing close to a half-percentage-point Overnight Policy Rate (OPR) hike over the next 12 months, up from less than a quarter-point at end-August. The sharpest move in global markets was in the US, where the Fed raised the Fed fund rates to 4.00% (upper bound) on 16 September and the two-year UST yield jumped 51 bps. The European Central Bank (ECB) and Bank of Japan (BoJ) also hiked, to a deposit rate of 2.50% and a policy rate of 1.25%. MTD, both the US and euro-area yield curves bear-flattened, while China’s curve was comparatively steadier.