-
Bank Negara Malaysia (BNM)’s baseline economic growth estimate (4.0%-5.0% in 2026) is more optimistic than SERC’s 4.0%-4.5%. BNM’s assumption of the war duration and crude oil price is in line with our assumptions.
-
We caution that high operating costs driven by surging energy prices and persistent supply chain bottlenecks are severely impacting business sentiment, with many firms adopting a “wait-and-see” approach to investment.
-
Headline and core inflation are expected to increase higher (1.5%-2.5% and 1.8%-2.3%, respectively, in 2026 (1.4% and 2.0%, respectively, in 2025), buffered by the targeted fuel subsidy and a strong Ringgit, which had appreciated by 10.2% in 2025 and further 0.5% as of end-March 2026, which provides a slight buffer against imported goods and services.
-
Given that the expected increases in inflation come from a low level and supply shocks, we expect BNM to respond to oil-induced inflation by keeping the overnight policy rate unchanged at 2.75% in 2026, while continuing to closely monitor the transitory impact of oil shocks on economic growth and inflation.
