Summary

• Malaysia’s gross domestic product (GDP) expanded by 4.4% in 2Q2025 (1Q2025: 4.4%), slightly below the advance estimate of 4.5%. Growth was supported by robust domestic demand, with private consumption accelerating to 5.3% (1Q2025: 5.0%) on the back of civil servant wage hikes and minimum wage increases. On the investment side, investment activity gained traction, with gross capital formation up by 12.1% y-o-y in 2Q2025 (1Q2025: 9.7%). On the external front, exports rebounded in July by 6.8% (June: –3.3%) after two months of contraction, boosted by stronger electrical and electronics (E&E) shipments.
• Ringgit strengthens on Federal Reserve (Fed) rate-cut expectations. As of 25 August, the ringgit appreciated by 1.6% month-to-date (MTD) to 4.21 USDMYR, while the Dollar Index (DXY) weakened by 0.7% from 99.1 to 98.4 between 1 August to 25 August after Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium signalled possible rate cuts amid labour market concerns and persistent inflation risks. Regionally, Asian currencies gained an average of 1.1% MTD as of 25 August, with these broad-based gains underscoring stronger market sentiment and reduced uncertainty surrounding US tariffs in the near term. Of note, average tariffs on selected Asian economies, including South Korea, Taiwan, Thailand, Malaysia, and Indonesia eased to 17.6% in August (April: 29.8%).
• In July, Malaysia’s capital market recorded a net foreign portfolio outflow of RM6.5 billion (June: –RM6.7 billion), driven by the widening Overnight Policy Rate (OPR)–Fed funds rate differential following Bank Negara Malaysia’s (BNM) OPR cut on 9 July. The bond market saw outflows of RM5.5 billion (June: –RM5.4 billion), while equities registered net selling of RM1.0 billion (June: –RM1.3 billion), bringing foreign holdings of Malaysian Government Securities (MGS)/ Government Investment Issues (GII) down to 21.1% (June: 21.8%). Looking ahead, the anticipated Fed rate cut is expected to narrow the US Treasury (UST)–MGS spread, easing outflow pressure and supporting demand for MGS/GII.
• MGS rally continued, supported by benign domestic inflation and BNM’s July OPR cut. As of 21 August, MGS yields eased by 3–6 bps MTD, except for the 10-year tenor, which edged up marginally by 2 bps. The sentiment was further supported by the government’s fiscal consolidation strategy, with the reaffirmation of the 3.8% deficit target for 2025 easing concerns over debt sustainability and sovereign supply.