Summary

• Malaysia’s economy closed 2025 on a strong note, with 4Q2025 gross domestic product (GDP) growing by 6.3%, surpassing the advance estimate of 5.7% (3Q2025 actual: 5.4%). This lifted the full-year growth in 2025 to 5.2%, matching 2024’s pace (2024: 5.1%). Moving into 2026, economic momentum is underpinned by firmer external demand and steady private consumption. Exports accelerated to 19.6% in January (Dec: 10.2%), led by electrical and electronics (E&E), which surged by 39.5% (Dec: 25.0%), alongside machinery and equipment (Jan: 13.0%; Dec: 11.3%), and optical and scientific equipment (Jan: 36.2%; Dec: 20.8%). Downside risks remained from renewed trade uncertainties and geopolitical conflicts. On the domestic front, consumption is expected to strengthen, buoyed by supportive interest rates and fiscal conditions.
• Inflationary pressures remained contained, with headline inflation at 1.6% in January (Dec: 1.6%). Inflation in major weighted components such as food and beverages (Jan: 1.5%; Dec: 1.5%) and alcoholic beverages and tobacco (Jan: 2.5%; Dec: 2.5%) remained unchanged. Housing and utilities edged up to 1.2% (Dec: 0.9%) but this was offset by declines in transportation (Jan: -0.7%; Dec: 0.1%), clothing and footwear (Jan: 0.0%; Dec: 0.1%), and health (Jan: 1.4%; Dec: 1.5%). Following the recent US-Israel war on Iran and concerns over disruptions to oil shipping through the Strait of Hormuz, inflationary pressures are expected to arise mainly from higher logistics costs and supply chain adjustments, rather than an acute energy-led price shock. MARC Ratings expects any price increases to be modest and temporary, reflecting the typically short-lived impact of geopolitical disruptions on oil prices.
• Foreign portfolio inflows remained resilient in January. Bond inflows totalled RM1.0 billion (Dec 2025: RM3.0 billion), lifting foreign holdings of Malaysian Government Securities (MGS) and Government Investment Issues (GII) to 21.5% (Dec 2025: 21.6%). Equity inflows registered RM1.0 billion (Dec 2025: -RM1.9 billion), marking the first concurrent inflows into both asset classes since May 2025. Overall, foreign portfolio inflows rose to RM2.0 billion (Dec 2025: RM1.1 billion). Meanwhile, the ringgit appreciated by 1.4% to 3.89 USDMYR month-to-date (MTD) 23 February, trailing PHP (+2.3%) and THB (+1.8%).
• MGS yields edged higher MTD as of 23 February, with the curve shifting up by 2–4 bps. The increase reflected softer auction demand and stronger-than-expected economic growth, although the upside was capped by steady headline inflation at 1.6% month-on-month and continued bond inflows. As of late February, markets are pricing in at least two Fed rate cuts by end-2026, with the probability of a third cut rising to 35.7% from 12.2% at the start of the month. MARC Ratings opines that Bank Negara Malaysia is expected to keep the Overnight Policy Rate unchanged. Ongoing trade policy uncertainty following the US Supreme Court’s ruling against Trump’s 2025 tariffs, and subsequent retaliatory measures, alongside the US-Israel war on Iran, is likely to sustain risk-off sentiment and support safe-haven demand for US Treasuries (USTs). Nonetheless, MGS should remain supported by favourable yield differentials and Malaysia’s stable economic conditions, and we maintain that the ringgit will consolidate within the 3.88–3.98 range against the US dollar in the near term.