Kuala lumpur: Headline inflation is expected to remain moderate, averaging between 1.5 percent and 2.5 percent in 2026 despite greater global commodity price volatility amid the West Asia conflict, said Bank Negara Malaysia (BNM). In the Economic and Monetary Review 2025 report released today, BNM highlighted that a stronger exchange rate could help in containing import prices.
According to BERNAMA News Agency, domestic policy measures will also play a role in mitigating the pass-through of global cost pressures to domestic prices. Cost pressures faced by firms are expected to remain manageable, with pricing behavior generally cautious in the retail and services segments, the central bank noted. These developments suggest a relatively contained inflation path over the year.
BNM forecasts core inflation to average between 1.8 percent and 2.3 percent in 2026, aligning with expectations that economic activity will remain in line with potential, without causing significant demand-driven inflationary pressures. Upside risks include import-sensitive sectors like food, which could face higher costs due to elevated global commodity prices, potentially leading some producers and retailers to opportunistically raise prices.
On the downside, weaker global demand could affect domestic activity, while softer global commodity prices might lower imported costs and ease inflationary pressures. Exchange rate developments could also influence imported cost pressures, affecting inflation outcomes.
Regarding monetary policy, BNM stated it will continue to focus on fostering conditions that support sustainable economic growth while keeping inflation contained. Though inflation is projected to remain moderate, BNM cautioned about potential upside risks from renewed external cost pressures and downside risks from softer global growth and moderate domestic demand conditions.
In 2026, BNM's monetary policy decisions will be guided by the Monetary Policy Committee's (MPC) assessment of risks to Malaysia's inflation and growth outlook. Domestic financial markets are expected to remain broadly favorable, supported by accommodative global financial conditions and Malaysia's strong economic fundamentals.
BNM expects Malaysian Government Securities (MGS) yields to remain supported by the global interest rate environment and gradual foreign inflows. Additionally, domestic equity market performance is anticipated to be buoyed by improving investor confidence, supported by Malaysia's positive growth prospects. Financing conditions will remain supportive in 2026, underpinned by sustained credit growth amid continued economic expansion and conducive borrowing conditions.