Bank Negara Malaysia (BNM) has raised the top end of its 2026 economic growth forecast, signaling a slightly more optimistic outlook even as the country contends with trade disruptions and elevated fuel costs linked to the Middle East conflict and U.S. tariff measures. Documents published alongside the central bank's 2025 annual report show BNM now expects growth of between 4% and 5% this year, compared with its prior forecast of 4% to 4.5%.
The central bank noted that risks to both growth and inflation stem from the surge in oil prices, and emphasized that the net effect will depend on how long and how intensely the war continues to affect global markets.
"Malaysia is facing the conflict from a position of strength, characterised by robust domestic demand, moderate inflation, a sound financial sector and a resilient external position," the central bank said in its 2025 economic and monetary review.
BNM's upward adjustment to the upper bound of its growth projection runs counter to expectations elsewhere, where forecasters have tended to anticipate that the Middle East war would dampen activity. The bank highlighted a number of internal strengths that support its brighter outlook.
Domestic financial conditions are expected to remain favourable, BNM said, underpinned by strong economic fundamentals, a deep domestic institutional investor base and a well-capitalised banking system. That combination, the bank added, has attracted foreign interest.
The country's status as a net exporter of energy also provides a partial buffer against the repercussions of the conflict, BNM noted. Looking ahead, the central bank expects growth next year to be underpinned by healthy household spending, ongoing investment activity, sustained demand for electrical and electronic exports, and continued tourism inflows.
BNM pointed to last year's performance as context for its expectations: the economy expanded by 5.2% in 2025, exceeding prior forecasts, and the country recorded a record value of trade and approved investments during the year.
On inflation, the central bank projects a moderate outlook for 2026, in part due to policy measures designed to cushion the impact of rising commodity and energy costs. However, those policies have pushed the government's subsidy bill sharply higher since the outbreak of the war.
BNM's documents state that the government is now expected to spend 4 billion ringgit a month to maintain a fixed price for RON95 transport fuel and to provide cash assistance for some diesel vehicle operators, compared with about 700 million ringgit previously.
Headline inflation is forecast to average between 1.5% and 2.5% in 2026, slightly above the 1.4% recorded in 2025. Core inflation is projected to average between 1.8% and 2.3% this year, against 2% in 2025, according to the central bank's published figures.
BNM stressed its readiness to act in response to developments arising from the Middle East conflict. "We also stand ready - as we have through successive periods of heightened uncertainty - to ensure orderly markets and manage risks of excessive volatility," the bank stated.
Monetary policy has so far remained accommodative. BNM left its key policy rate unchanged at 2.75% for the fourth consecutive meeting earlier this month. The bank's last reduction of the main policy rate came in July 2025, an action that followed steep U.S. tariffs imposed by U.S. President Donald Trump on most trading partners.
The earlier U.S. tariff on Malaysia was later lowered to 19% under a trade agreement. After the U.S. Supreme Court ruled those tariffs illegal last month, President Trump imposed a 10% global import duty for 150 days, a move that required Malaysian policymakers to evaluate the consequences for an export-driven economy.
Currency conversion used in BNM's report was noted as $1 = 4.0260 ringgit.
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