Malaysia’s economy is anticipated to grow by 4.4% in 1Q2025, easing from 5.0% in the previous quarter due to weaker mining and manufacturing output, although domestic demand as well as the services and construction sectors remained resilient. Inflation stayed subdued at 1.4% in March, but upside risks may arise from the recently implemented minimum wage hike and the upcoming RON95 fuel subsidy rationalisation. Despite trade headwinds, exports rose by 6.8% in March, led by electrical and electronics, palm oil, and machinery, particularly to the US, Hong Kong, and Singapore. However, exposure to new US tariffs would pose risks, although the affected countries are likely to cope through ongoing supply chain diversification.

The ringgit rebounded in April after initially weakening following Trump’s tariff announcement, helped by the 90-day tariff pause and broader dollar weakness. A shift in investor sentiment, supported by regional currency appreciation and reduced demand for the US dollar, also drove renewed capital inflows. Foreign investors withdrew RM4.7 billion from equities but this was more than offset by increased buying in the bond market, recording net inflows of RM2.8 billion for the overall capital markets.

Yields of Malaysian Government Securities declined across the curve, with a bull-steepening pattern led by sharp drops in short- to medium-term tenures. This reflected strong bond demand amid dovish global monetary expectations and tariff-induced uncertainties. Secondary market activity slowed, as risk appetite faded. Corporate credit spreads widened, indicating increased caution especially for AA and A-rated corporate bonds while sovereign and high-grade bonds remained in favour.

Globally, the Dollar Index weakened to below 100, reflecting concerns over Trump’s tariff policies and expectations of rate cuts by the Federal Reserve. Meanwhile, the US Treasury market saw higher yields, driven by retaliatory selling and inflation concerns. The divergence between falling equity market demand and volatile bond yields reflect investor uncertainty. Despite maintaining a broadly dovish bias, central banks and global markets are adopting a cautious wait-and-see approach during the current 90-day tariff review, as Trump’s policy actions are likely to remain unpredictable.