Key Points
BNM kept the OPR unchanged at 2.75% and maintained a broadly neutral policy stance. We expect the central bank to remain on hold through the balance of 2026, as current monetary settings continue to support growth while keeping inflation manageable.
Domestic fundamentals remain supportive. Malaysia's labour market is resilient, investment activity remains robust, particularly in data centres and cloud computing, with a wider trade surplus supported by strong electronics and palm oil exports.
Inflation remains contained thanks to fuel subsidies. Headline and core inflation rose modestly to 2.0%yoy in May, reducing the urgency for monetary policy tightening.
BNM has revived a 2024-style FX measure that encourages government linked corporates to repatriate their foreign income. This should help smooth excessive currency volatility and limit disorderly MYR weakness, although a repeat of the sharp appreciation seen in 2024 is unlikely.
While Malaysia's economic fundamentals remain constructive, elevated US yields and geopolitical risks in the Middle East could weigh on the ringgit. Domestic state election risks are also coming into focus. We expect USDMYR to remain broadly within the 4.00–4.20 range in the near term, while retaining a constructive medium-term MYR view once US yields stabilise or decline.
On rates, our stance on Malaysian government securities remains broadly neutral. The carry appeal of 3-year and 5-year MGS has diminished as short-term money market rates have risen disproportionately, reducing the incentive for investors to extend duration further along the curve.
