Summary

• Headline inflation eased to 1.2% in May (Apr: 1.4%). The decline was driven by softer prices in food and beverages as well as housing, water, electricity and gas, while prices in the transportation sector remained unchanged from April amid lower global oil prices. Looking ahead, inflation may edge higher due to the 8% Sales and Services Tax (SST) rollout. However, the overall impact is expected to be modest and transitory.
• Malaysia’s exports declined in May following a strong surge in April, reflecting softer external demand amid ongoing trade policy uncertainties. Growth in exports of electrical and electronic (E&E) products, machinery, and palm oil helped cushion declines in petroleum and mining shipments. Furthermore, exports to the US and Taiwan remained strong, while exports to China and ASEAN weakened. With the US tariff pause set to expire in July, external trade is expected to moderate in the second half of 2025, posing downside risks to Malaysia’s manufacturing sector.
• Foreign portfolio flows into Malaysia strengthened in May, supported by a net foreign equity inflow of RM0.9 billion (Apr: -RM1.9 billion), the first inflow since September 2024. In the bond market, foreign inflows accelerated to RM13.4 billion (Apr: RM10.2 billion), the highest monthly level since May 2014, driving foreign holdings of Malaysian Government Securities (MGS)/ Government Investment Issues (GII) up to 22.4% (Apr: 21.4%). As a result, total net portfolio inflows surged to RM14.3 billion (Apr: RM8.3 billion), supported by a stronger ringgit, resilient macro fundamentals, and increased expectations of US Federal Reserve (Fed) rate cuts.
• Malaysia’s bond issuance declined in May, falling to RM21.6 billion (Apr: RM33.7 billion) broadly across sovereign, quasi-government, and corporate bond segments. MGS/GII supply dropped to RM10 billion (Apr: RM14 billion), aligning with the government’s fiscal consolidation strategy under Budget 2025. The issuance outlook remains anchored by a stable macroeconomic backdrop and a narrower fiscal deficit target of 3.8% of GDP (2024: 4.3% of GDP).