Summary

• Malaysia’s economy exceeded expectations in 2Q2026, with the advance estimate pointing to gross domestic product (GDP) growth of 5.8% (1Q2026: 5.4%), driven by resilient domestic demand, stronger manufacturing activity and a sharp rebound in mining output. Reflecting the stronger-than-expected first-half performance, MARC Ratings has revised its 2026 GDP growth forecast upward to 5.1% (previously: 4.4%), while maintaining its inflation forecast at 2.1%.
• Exports remained strong, expanding by 45.4% in June (May: 45.3%), supported by the global semiconductor and artificial intelligence (AI) investment cycle, and stronger demand for Malaysia’s energy exports amid ongoing Middle East supply disruptions. While the latest US tariffs introduce another source of external uncertainty, Malaysia’s relatively lower tariff rate and resilient demand for its key exports are expected to underpin a supportive outlook.
• As of month-to-date (MTD) 22 July, the ringgit remained broadly stable at 4.09 USDMYR (end-June: 4.08 USDMYR), supported by stable domestic fundamentals However, elevated US Treasury (UST) yields, ongoing US–Iran tensions and market expectations of further Federal Reserve (Fed) tightening, reflecting the likelihood of at least one 25-bps hike by September as of 22 July, are likely to continue weighing on the ringgit in the near term. Nevertheless, Malaysia’s strong sovereign rating and sustained current account surplus should continue to underpin investor confidence, support foreign demand for Malaysian Government Securities (MGS) and provide a buffer for the ringgit against external volatility. MARC Ratings expects the ringgit to trade within 4.00–4.15 USDMYR, revised from 3.98–4.07 USDMYR previously. While the Federal Open Market Committee (FOMC) left the federal funds rate unchanged at an upper bound of 3.75% in July, the 9-3 vote to hold (June FOMC: 12-0 vote), with three governors favouring a hike, points to a more hawkish policy stance.
• Foreign portfolio flows turned positive in June, recording net inflows of RM2.4 billion, driven by net bond inflows of RM4.9 billion (May: -RM4.7 billion), which more than offset net equity outflows of RM2.5 billion (May: -RM3.7 billion). The rebound in bond inflows reflected improved risk sentiment following the signing of the US–Iran Memorandum of Understanding (MoU) in mid-June as well as Malaysia’s resilient macroeconomic fundamentals. Meanwhile, MGS yields rose by 2–5 bps across the curve as of MTD 22 July, tracking higher UST yields and stronger domestic economic conditions, as investors scaled back expectations of near-term monetary easing by Bank Negara Malaysia (BNM) amid firmer growth prospects in 2026. Looking ahead, ongoing Middle East tensions could keep energy prices and inflation elevated, supporting higher global and domestic bond yields. Nevertheless, MARC Ratings maintains its forecast for the 10-year MGS yield at 3.60%–3.70% for 2026.