Malaysia’s gross domestic product growth remains well supported by both domestic and external demand, providing a strong buffer against near-term uncertainties. Although a marginal slowdown in private sector activity and exports of goods and services moderated 1Q2026 growth to 5.4% (4Q2025: 6.2%), underlying domestic demand remains resilient. Private consumption was supported by festive spending and tourism recovery, while investments continued to expand, catalysed by the global artificial intelligence (AI) upcycle.
In April, external demand strengthened significantly, surging by 36.9% (Mar: 8.4%), with exports increasing across key sectors as well as broad-based gains being seen across major trading partners. This performance reflects ongoing supply chain diversification and geopolitical realignment, strengthening Malaysia’s position as a trade-oriented economy. Regional trade activity may gain further support following the Trump–Xi meeting, reinforcing the persistence of geopolitical fragmentation and supply chain shifts.
Inflationary pressures have accelerated as elevated oil prices continue to feed through the economy, pushing headline inflation to 1.9% in April (Mar: 1.7%), mainly driven by higher transportation costs. Cost-push pressures are increasingly evident, with rising producer prices and a narrowing Producer Price Index – Consumer Price Index (PPI–CPI) spread indicating stronger transmission of upstream cost increases to consumers. Looking ahead, inflation is expected to remain elevated in the near term due to persistently high energy and supply chain costs, alongside potential secondary price effects on goods and services.
As of month-to-date (MTD) 26 May, the ringgit remained stable against the US dollar, trading around 3.97 USDMYR. Looking ahead, we expect the ringgit to trade within the 3.92–4.07 USDMYR range in the short term (prior forecast: 3.88–3.98 USDMYR). The revision is primarily externally driven, as market expectations of two rate cuts by the Federal Reserve (Fed) have been priced out following the Middle East war. In April, net foreign fund flows were positive across both equities and bonds. Foreign bond inflows were at RM3.8 billion (Mar: RM6.1 billion), with foreign holdings of Malaysian Government Securities/ Government Investment Issues (MGS/GII) stable at 21.5% (Mar: 21.6%). Meanwhile, equity flows of RM0.2 billion reversed into positive territory, following outflows in March (-RM0.1 billion)
In terms of MGS, as of MTD 26 May, yields rose by 3–6 bps, with the 10-year yield increasing by 3 bps to 3.59% (Apr: 3.56%). The modest upward pressure was driven by firmer inflation in April compared to March, alongside spillovers from higher global yields amid the Middle East war. MARC Ratings has revised its 10-year MGS yield forecast upwards to 3.60%–3.70% (previous forecast: 3.35%–3.40%), reflecting domestic inflationary pressures and the absence of Fed rate cuts in 2026.
On 7 May, Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 2.75%, citing sustained growth momentum. While higher, inflation is also expected to remain manageable in 2026, as stable demand and policy measures limit the pass-through of external cost pressures to consumers. Accordingly, MARC Ratings expects BNM to keep the OPR unchanged in 2026. Over in the US, market expectations of Fed rates have shifted from pricing in marginal easing on 1 May, to near one rate hike as of 26 May. Of note, Kevin Warsh was sworn in as Fed Chair on 22 May, succeeding Jerome Powell. While initially perceived as dovish, his emphasis on Fed independence at a time of elevated inflation conditions suggests limited scope for near-term easing and a continued higher-for-longer policy bias.