Malaysia’s export growth strengthened further to 45.3% in May (Apr: 37.3%), marking a second consecutive month of double-digit expansion. Growth continued to be underpinned by the global semiconductor upcycle and strong demand for AI-related technologies, which drove electrical and electronics (E&E) exports higher by 70.5% (Apr: 46.6%). Trade activity also continued to benefit from supply chain diversification amid ongoing geopolitical uncertainties. Looking ahead, regional trade prospects remain supported by improving manufacturing conditions, with the latest Purchasing Managers’ Index (PMI) readings in China, the United States, and the euro area continuing to signal expansion. The US–Iran de-escalation of tensions and continued safe passage through the Strait of Hormuz will remain important determinants of the global trade outlook.

Headline inflation edged up to 2.0% in May (Apr: 1.9%), driven primarily by firmer price increases in food and non-alcoholic beverages (May: 1.4%; Apr: 1.2%) and housing and utilities (May: 1.2%; Apr: 1.1%). Meanwhile, inflation in transportation (May: 3.8%; Apr: 4.1%) and restaurants and accommodation services (May: 2.5%; Apr: 2.6%) moderated. Looking ahead, inflation is expected to remain broadly consistent with MARC Ratings’ 2026 forecast of 2.1%, supported by easing energy prices that should alleviate cost pressures following the de-escalation of US–Iran tensions. In line with the recent moderation in crude oil prices, we have revised our 2026 Brent crude oil price forecast to around USD80 per barrel from the previous range of USD80–USD90 per barrel.

The ringgit weakened against the US dollar, reaching 4.15 USDMYR as of 22 June from 3.97 USDMYR at the start of the month. The depreciation was driven primarily by external factors, including a stronger US dollar, elevated US Treasury yields and expectations of a more hawkish Federal Reserve (Fed). Foreign portfolio flows also turned negative in May, with net bond and equity outflows of RM4.3 billion (Apr: +RM3.8 billion) and RM3.7 billion (Apr: +RM0.2 billion). MARC Ratings expects the ringgit to trade within the 4.00–4.15 USDMYR range, reflecting a wider Malaysian Government Securities–US Treasuries (MGS–UST) yield differential that continues to favour the US dollar. Nevertheless, Malaysia’s strong export performance and sustained foreign direct investment inflows should provide underlying support for the ringgit.

As of month-to-date 22 June, MGS yields rose modestly by 1–3 bps across the curve, with the 10-year yield closing at 3.61% (May: 3.59%), largely tracking higher UST yields as markets priced in at least one additional 25bp Fed rate hike by December. Additionally, firmer domestic inflation in May also contributed to the uptick in yields. However, the increase in yields remained limited as inflation remains low and continues to track within Bank Negara Malaysia’s 2026 forecast range of 1.5%–2.5%. Meanwhile, easing geopolitical tensions following the US–Iran ‘Memorandum of Understanding’ signed on 17 June also helped moderate inflation concerns moving forward. MARC Ratings expects the 10-year MGS yield to trade within the 3.60%–3.70% range by year end, with external factors, particularly hawkish Fed policy expectations and a higher UST yield, to remain the key drivers.