Headline inflation moderated to 1.2% in May (Apr: 1.4%), driven by slower price increases in food and beverages as well as housing, water, electricity and gas, while prices in the transportation sector remained unchanged from April. Although the upcoming implementation of the 8% Sales and Services Tax (SST) on 1 July may add modest price pressures, its impact is expected to be contained as essential items remain exempt. Moreover, the new electricity tariff structure, set to reduce average costs by 19%, will also help offset upward adjustments.
The ringgit saw brief volatility, weakening to RM4.29/USD on 23 June amid tensions in the Middle East before rebounding to RM4.24/USD on 24 June following a ceasefire announcement by President Trump. As of 24 June, the ringgit appreciated by 0.3% month-to-date (MTD), in contrast to the US Dollar Index (DXY), which declined by 0.8% MTD. Moving forward, the ringgit is expected to trade with some degree of volatility in the near term due to geopolitical tensions and trade uncertainties; however, MARC Ratings maintains a year-end forecast of RM4.27/USD.
Private consumption remained firm, with wholesale and retail trade rising 5.4% in April (Mar: 4.8%), driven by festive spending, sustained business activities and stronger tourism, as inbound visitors averaged 3.35 million year-to-date (YTD) as of end-April (2024: 3.14 million). While the expanded SST may slightly dampen high-end spending, overall demand is expected to hold up. Meanwhile, export growth contracted by 1.1% in May (Apr: +16.4%) amid softer global demand, though gains in electrical and electronics, machinery, and palm oil partially offset declines in petroleum and mining. Looking ahead, we expect external trade to moderate as the US tariff pause approaches expiry in July.
On the other hand, Malaysia’s capital market recorded its first net foreign equity inflow since September 2024, with RM0.9 billion entering the market in May (Apr: -RM1.9 billion). Concurrently, bond inflows surged to RM13.4 billion (Apr: RM10.2 billion), the highest since May 2014, bringing total net portfolio inflows to RM14.3 billion (Apr: RM8.3 billion). Looking ahead, near-term inflows may moderate as geopolitical risks, particularly the Israel-Iran conflict, weigh on global sentiment.
In addition, Malaysian Government Securities (MGS) yields climbed modestly across tenures on 23 June, with the 10-year yield closing at 3.59% (May: 3.53%). The uptick reflects mild risk repricing amid heightened geopolitical tensions in the Middle East. Nevertheless, the shift remains contained, underscoring Malaysia’s low-beta profile and low sensitivity to geopolitical shocks.
Globally, markets continued to price in a dovish stance by the Federal Reserve (Fed). The DXY extended its decline, falling by 9.2% YTD to 97.9 as of 24 June (Jan: 107.8), while US Treasury (UST) yields dropped 5–7 bps across maturities MTD as of 23 June, following the Fed’s 18 June decision to hold rates at 4.25%–4.50% and softer May consumer price index data compared to consensus. Additionally, safe-haven demand amid geopolitical risks added further downward pressure on UST yields, with markets increasingly positioning for two Fed rate cuts by year end.