Bank Negara Malaysia (BNM) is expected to keep its official interest rate unchanged at 2.75 percent throughout 2026, even as inflation shows signs of rising.
The Q2 2026 Investment Outlook report from HSBC Private Banking revealed that inflation is rising, driven by still-strong domestic demand, but moderate wage pressures and low unemployment are curbing sharp price increases.
HSBC believes inflation is still under control and only drastic changes such as a surge in oil prices will force BNM to act.
HSBC Private Banking Asia Investment Strategist and Premier Wealth Abhilash Narayan predicts Malaysia’s economic growth will ease slightly to 4.5% next year, down from 4.9% this year.
Key supporting factors include strong domestic consumption, continued investment in infrastructure and data centres, and a recovery in the tourism sector.
The main challenges come from rising global energy prices and geopolitical tensions in the Middle East.
However, targeted subsidy measures and price controls taken by the government are seen as effective in cushioning the negative impact.
In terms of currencies, the ringgit has remained among the strongest in Asia against the US dollar this year, thanks to corporate foreign exchange outflows, a current account surplus, and a positive outlook for foreign direct investment.
However, after a strong performance, the ringgit is now close to its fundamental value. HSBC has taken a neutral stance for the next six months with a USD/MYR forecast of around 3.85 by end-2026.
The stock market, meanwhile, is still facing imbalances. Despite strong economic fundamentals, the local index under-represents high-potential sectors such as semiconductors and data centres.
This situation has led HSBC analysts to remain neutral on Malaysian stocks in the short term.
This trend highlights BNM's key dilemma in maintaining the OPR as inflation slowly rises without giving room for the risk of uncontrolled price pressures.
The decision to keep rates at current levels may be right, but the hidden risks from energy price fluctuations and geopolitical factors should not be underestimated.
BNM needs to be prepared to react quickly if the situation changes.
