Malaysia’s economy expanded by 5.2% in 2025, after 5.1% growth in 2024. Growth was supported by domestic confidence, AI-related investment and accommodative policy, despite trade uncertainty linked to US-led tariffs.
Standard Chartered expects GDP growth to ease to 4.5% in 2026. This is compared with the government forecast range of 4.0–4.5%, with slower growth partly linked to fading front-loaded activity and delayed tariff effects.
The report notes upside risks to the 2026 outlook from continued AI-related demand and positive domestic sentiment. It also refers to stronger-than-expected performance in Q4.
The report says this performance could prompt questions about whether Bank Negara Malaysia may reverse its pre-emptive policy rate cut from July 2025. It adds that benign inflation and ongoing external uncertainty could lead the central bank to keep rates on hold in the near term, while assessing growth over the next 1–2 quarters.
Given the strong economic performance from last year, we see the Ringgit as well-supported. Malaysia’s GDP grew an impressive 5.2% in 2025, driven by a surge in AI-related investments and confident domestic spending. This fundamental strength suggests a bullish outlook for the currency in the coming weeks.
This growth story is backed by real numbers we’ve seen emerge. Malaysia attracted over MYR 45 billion in new data center and AI-related foreign direct investment in the second half of 2025. This, combined with a 6.5% year-on-year increase in retail sales for the fourth quarter, confirms the economy is on solid footing.
Despite the strong finish to 2025, we don’t expect Bank Negara Malaysia (BNM) to raise interest rates immediately. They are likely to hold off on reversing their pre-emptive rate cut from July 2025. The central bank will probably wait to assess the economy over the next couple of quarters.
This patient stance is justified by the latest inflation figures for January 2026, which came in at a manageable 2.1%. We saw a similar pattern in the 2018-2019 period, where BNM held rates for an extended period after a cut to ensure the recovery was secure. Lingering uncertainty from US-led tariffs also supports this cautious approach.
For derivative traders, this points towards a strategy of selling USD/MYR volatility. With strong economic underpinnings but a central bank on hold, the Ringgit is likely to appreciate gradually rather than experience a sharp rally. Selling out-of-the-money call options on the USD/MYR pair could be a way to collect premium from this stable outlook.
In the interest rate market, the view that BNM will stay on hold should keep the front end of the yield curve anchored. This suggests that any market pricing for a near-term rate hike is likely overdone. Therefore, positioning in short-term interest rate swaps to reflect a stable policy rate could be a prudent move.
