The Malaysian economy demonstrated remarkable stability at the start of the year, with inflation metrics remaining perfectly anchored in January. Both headline and core inflation held steady at 1.6% and 2.3%, respectively, reflecting a balanced pricing environment. This stability was achieved despite some underlying shifts in consumer costs.
Upward pressures were largely driven by external factors, notably a surge in the prices of jewellery and watches that mirrored the rising global costs of precious metals. Additionally, electricity prices saw a slower rate of decline as discounts tied to generation costs were adjusted downward. However, Malaysian consumers found relief elsewhere, as these increases were effectively neutralized by falling prices for RON97 petrol and a reduction in the costs of selected core consumer services, particularly home maintenance, repair, and digital streaming subscriptions.
On the external front, Malaysia’s trade dynamics highlighted a robust recovery in global demand, particularly within the technology sector. Export growth experienced a dramatic acceleration, surging to 19.6% compared to the 10.2% recorded in December 2025. This impressive leap was primarily fueled by sustained, strong performance in the electrical and electronics (E&E) sector, signaling a vital competitive advantage in global supply chains.
Conversely, import growth cooled significantly, moderating to 5.3% from December’s 9.5%, a trend that was visible across nearly all import categories. Consequently, the nation maintained a healthy trade surplus of RM21.4 billion. While this figure represents a slight contraction from the RM22.1 billion surplus seen in the previous month, it underscores a healthy economic environment where elevated import levels are being comfortably offset by exceptional export revenues.
Domestic economic expansion was strongly supported by an active and healthy credit market, pointing to sustained confidence among businesses and consumers alike. Total credit extended to the private non-financial sector grew by 5.5%, a slight uptick from 5.4% in December 2025. This expansion was heavily driven by the corporate sector turning to capital markets, evidenced by a robust 7.6% growth in outstanding corporate bonds, up from 6.9% the previous month.
Traditional lending remained consistent, with outstanding loan growth holding steady at 5%. Business loans specifically expanded by 4%, bolstered by a healthy appetite for investment-related financing, especially among larger, non-SME corporations, while lending to small and medium enterprises remained stable. Household borrowing also showed resilience, maintaining a steady growth rate of 5.6% across various loan purposes, securely backed by a banking system that remains extraordinarily well-capitalised.
Malaysian banks reported a formidable capital position of 18.1%, translating to excess capital buffers of RM139.6 billion, ensuring they are well-equipped to support ongoing credit intermediation while absorbing any unforeseen shocks. Asset quality mirrored this strength, with gross and net impaired loan ratios holding firm at 1.4% and 0.9%, respectively, and loan loss coverage standing at a highly sufficient 125.9%.
The strength of Malaysia’s domestic fundamentals did not go unnoticed in global financial markets, allowing local assets to perform admirably against a backdrop of international uncertainty. Global markets were largely characterized by a weakening US dollar, driven by heightened geopolitical tensions and lingering anxieties over international trade tariffs.
In stark contrast, Malaysia’s stable economic outlook and robust data attracted significant foreign portfolio inflows. This favorable dynamic propelled the ringgit to a 2.9% appreciation against the US dollar, notably outperforming the regional average of 0.3% and registering a 2.2% gain on the Nominal Effective Exchange Rate (NEER) basis. Domestic equities also rallied, with the FBM KLCI advancing by 3.6%, though trailing the broader regional surge of 7.1%.
Furthermore, the domestic bond market showcased profound resilience; despite a higher net issuance of Malaysian Government Securities (MGS), sustained appetite from non-resident investors easily absorbed the new supply. This robust foreign demand kept yields virtually flat, with the 10-year MGS yield edging up by a mere 1 basis point, successfully avoiding the heavier upward pressures that pushed the regional average yield higher by 9 basis points.
