Summary

• Malaysia’s 2Q2025 gross domestic product (GDP) growth advance estimate was 4.5%, close to the 4.4% reported in 1Q2025. June’s exports continued to decline after a contraction in May, registering at -3.5% (May: -1.1%). Current data points to a potential broad-based slowdown in external demand, which may persist until a more favourable trade agreement is secured. MARC Ratings projects Malaysia’s GDP to grow by 4.2% in 2025, within Bank Negara Malaysia’s (BNM) revised GDP growth range of 4.0%–4.8%. In the 13th Malaysia Plan (13MP), the government targets the annual GDP growth to be between 4.5% and 5.5% from 2026 to 2030.
• On 9 July, BNM delivered a pre-emptive 25 bps cut to the Overnight Policy Rate (OPR), lowering it to 2.75%. The ringgit remained stable despite the rate cut, as expectations of deeper Federal Reserve (Fed) rate cuts over time supported the ringgit. MARC Ratings foresees the possibility of additional rate cuts in Malaysia over the next 12 months, as external demand conditions are likely to soften, with spillover effects on the domestic economy. In contrast, the Federal Reserve maintained its upper bound interest rate at 4.50%, on 30 July highlighting sticky inflation and stable labour market conditions.
• In June, Malaysia’s capital market saw net foreign portfolio outflows of RM6.7 billion, the largest monthly outflow year-to-date (YTD) as global risk-off sentiment intensified. The bond market led the exodus with RM5.4 billion in outflows (May: +RM13.4 billion), while equities recorded net selling of RM1.3 billion (May: +RM0.9 billion). As a result, foreign holdings of MGS/GII fell to 21.8% (May: 22.4%). Looking ahead, near-term risk appetite may remain fragile, with the 1 August US tariff deadline approaching amid rising geopolitical risks in the Middle East.
• Malaysian Government Securities’ (MGS) yields declined across the curve in July, led by a sharper fall at the front end as markets repriced following BNM’s 25 bps OPR cut. As of 23 July, the 3-year yield dropped to 3.07% (Jun: 3.14%), the 5-year to 3.16% (Jun: 3.20%), the 10-year to 3.42% (Jun: 3.49%), and the 20-year to 3.75% (Jun: 3.78%). Nonetheless, modest fiscal pressures, potentially driven by expansionary policies aimed at mitigating economic risks through to 2026 and stimulating the early phase of the upcoming 13MP, could exert some pressure on long-end yields.