Key Points
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The Malaysian ringgit (MYR) has continued to strengthen against the US dollar, recording about 7% gain year to date. This brings our 2025 year-end forecast of 4.1500 within reach, and the risk is for ringgit to strengthen further towards the 2024 high of around 4.0950 level against the US dollar.
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We expect the ringgit to appreciate further against the US dollar, supported by resilient domestic demand, prudent fiscal management, and a narrowing policy rate gap with the US. The recent strength in CNY has also had a positive spillover effect on the ringgit, while global trade tensions appear to ease, as highlighted by a one-year trade truce resulting from the recent Trump-Xi meeting in Busan and a modular trade pact between the US and Malaysia. Notably, the zero percent US tariff on Malaysian palm oil, coupled with Malaysia’s strategic role in rare earth exports to the US, add to the ringgit’s tailwind.
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Bank Negara Malaysia (BNM) held its Overnight Policy Rate (OPR) unchanged at 2.75% in November, as widely expected. The Monetary Policy Committee assessed the current stance as appropriate and supportive of growth and price stability. The policy statement suggests a broadly neutral tone from policymakers, with no immediate rush to adjust monetary policy. Looking ahead to 2026, we expect BNM to maintain its policy rate at 2.75%, even as the Federal Reserve potentially eases further. Unless there is clear evidence of economic deterioration, BNM is likely to remain on hold, supported by favourable growth-inflation dynamics and improved external trade conditions.
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Malaysia’s economy continues to outperform, with Q3 GDP growth accelerating to 5.2%yoy from 4.4%yoy in Q2. Key contributors include robust domestic demand and strong merchandise exports, which rose 7.4%yoy in Q3. Re-exports also remained buoyant, surging 37.2%yoy in Q3 compared to 21.2%yoy in Q2. Exports to Singapore and the US were notable drivers of export growth, while the electrical and electronics (E&E) sector, accounting for about 40% of total exports, remains a cornerstone of Malaysia’s foreign earnings.
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The 2026 budget reinforces this momentum, allocating over RM700mn to tourism under the “Visit Malaysia 2026” campaign and promoting high-value investments in the E&E sector (see Malaysia: Budget signals disciplined growth, supporting ringgit and bonds). Tourist arrivals have already recovered to pre-COVID levels by the end of 2024, but a sustained increase above that level has yet to materialize. The budget seeks to boost tourism by funding promotional events and offering tax incentives for upgrading tourism facilities and business premises.
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We expect inflation to remain manageable in Malaysia. The net impact from removing fuel subsidies for foreigners and using those savings to lower fuel prices for Malaysians will likely reduce inflationary pressures. Meanwhile, the expansion of the sales and services tax (SST) is estimated to have only a modest impact on inflation, around 0.2 percentage points.
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Despite some volatility in foreign bond flows, net foreign bond inflows rose to RM12.8bn in the first 10 months of 2025, up from RM7.1bn over the same period in 2024. With a narrower budget deficit target for 2026, we forecast a modest decline in Malaysia’s 10-year government bond yield to 3.3% by end-2026, from 3.51% currently. This outlook supports Malaysia’s attractiveness for fixed income investors and reinforces our constructive view on the ringgit.
