Malaysia’s gross domestic product (GDP) growth moderated to 4.4% in 1Q2025 (4Q2024: 5.0%), but remained supported by the services (5.0%), manufacturing (4.1%), and construction (14.2%) sectors. Exports surged by 16.4% in April (Mar: 6.8%), led by electrical and electronics as well as machinery exports, reflecting the front-loading of trade activities after the 90-day tariff pause announcement. Capital imports spiked 114.1% in April (Mar: -19.0%), driven by multi-year projects and investment realisation.
Headline inflation held steady at 1.4% in April (Mar: 1.4%), bringing the year-to-date (YTD) average to 1.5%. Food and beverage prices eased to 2.3% (Mar: 2.5%), healthcare inflation moderated to 0.9% (Mar: 1.0%), while housing, utilities, and gas edged higher at 2.0% (Mar: 1.9%). Prices in the transportation sector remained unchanged for the third consecutive month, growing at 0.7%. Looking ahead, we expect inflationary pressures to remain contained. Given recent inflation trends, global economic uncertainties and the decline in oil prices, MARC Ratings’ full-year inflation forecast for 2025 has been revised downwards to 2.3%, from its earlier projection of 2.6%.
Bank Negara Malaysia (BNM) maintained the overnight policy rate (OPR) at 3.00% in May, reiterating its policy stability stance. To enhance liquidity, BNM cut the statutory reserve requirement (SRR) by 100 bps to 1.0%, its first cut since 2020, injecting an estimated RM19 billion into the financial system. The ringgit strengthened on improved trade sentiment, peaking at RM4.20 per USD in May and gained momentum after the US and China formalised the 90-day tariff pause agreement. YTD, gains were also seen across Asian currencies, appreciating by as much as 5%.
Bond market activity strengthened in April, with net foreign bond inflows rising to RM10.2 billion (Mar: RM3.2 billion), the highest monthly inflow since the previous major peak of RM11.3 billion in July 2023. Meanwhile, net equity outflows eased to RM1.9 billion (Mar: -RM4.7 billion), marking the lowest monthly outflow since October 2024. Foreign holdings of Malaysian Government Securities (MGS) and Government Investment Issues (GII) edged higher to 21.5% (Mar: 20.9%). This brought the combined net foreign inflows across bonds and equities to RM8.3 billion in April. Looking ahead, bond inflows are expected to remain resilient in the near term, supported by Malaysia’s stable macroeconomic backdrop that is anchored by subdued inflation, a steady policy rate, and a firmer ringgit.
The MGS yield curve shifted lower across all maturities, reflecting bullish market sentiment, supported by a resilient domestic economy. Externally, expectations of Fed rate cuts, the prospect of lower interest rates in other advanced markets, and a softer Dollar Index further enhanced the relative appeal of Malaysian bonds.