Malaysia’s economy grew by 5.2% in 2025, up from 5.1% in 2024. Growth was helped by strong domestic confidence, AI-related investment, and supportive policy. This happened even as trade uncertainty increased due to US-led tariffs. Standard Chartered expects GDP growth to slow to 4.5% in 2026. This is close to the government’s forecast range of 4.0–4.5%. The slowdown is partly due to earlier front-loaded activity fading and tariff effects showing up later. The report highlights upside risks for 2026. These include ongoing AI-driven demand and strong local sentiment. It also points to better-than-expected growth in Q4. The report says the strong Q4 result may raise questions about whether Bank Negara Malaysia might reverse its pre-emptive rate cut from July 2025. However, it adds that mild inflation and external uncertainty could lead BNM to keep rates unchanged in the near term, while it reviews growth over the next 1–2 quarters. Because last year’s growth was strong, we think the Ringgit is well supported. GDP rose a solid 5.2% in 2025, led by a jump in AI-related investment and healthy domestic spending. This strength supports a positive near-term view for the currency. Recent data supports this view. Malaysia drew more than MYR 45 billion in new data center and AI-related foreign direct investment in the second half of 2025. Retail sales also rose 6.5% year-on-year in Q4, showing demand remained firm. Even with the strong end to 2025, we do not expect BNM to raise rates soon. It will likely avoid reversing the July 2025 cut right away. Instead, the central bank will probably wait to review the data over the next couple of quarters. Inflation supports this cautious stance. January 2026 inflation was a moderate 2.1%. This is similar to 2018–2019, when BNM kept rates steady for a long time after a cut to confirm the recovery was stable. Ongoing uncertainty from US-led tariffs also argues for patience. For derivative traders, this setup supports selling USD/MYR volatility. With strong fundamentals but a central bank that is likely on hold, the Ringgit may rise slowly rather than surge. One way to express this view is to sell out-of-the-money USD/MYR call options to earn premium in a steadier market. In rates, a “BNM on hold” view should keep the front end of the yield curve stable. This suggests markets may be overstating the chance of a near-term hike. Positioning in short-term interest rate swaps for a steady policy rate could therefore make sense.

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