KUALA LUMPUR: Malaysia’s fundamentals "remain encouraging,” supported by quality foreign direct investment (FDI) inflows, upbeat growth, a wider trade surplus and a clear commitment to fiscal consolidation, said OCBC Group Research.
Its chief economist and head, Selena Ling, stated that these factors could help enhance foreign investor confidence and improve prospects for inflows.
More fundamentally, she said structural reforms will push growth to 4.0 -4.5 per cent in 2027-28, namely through continued progress from economic masterplans.
"This will also be reflected in resilient foreign direct investment flows into Malaysia. Regions such as Johor will continue to benefit from initiatives such as the Johor-Singapore Special Economic Zone, which remains a stronghold for data centre flows. We expect the government will remain steadfast in its adoption of fiscal consolidation,” she said in a statement.
Ling also expects fiscal policy support to remain targeted in 2026, leaving monetary policy some room to manoeuvre.
Hence, OCBC Group Research remains comfortable with its call for a 25 basis points rate cut from Bank Negara Malaysia (BNM) in the first half of 2026 (1H26); "the risk to our call is that economic growth remains resilient, reducing the need for the central bank to lower its policy rate this year,” she stated.
On the ringgit, she said the outperformance of the local currency versus the US dollar seen in 2025 is likely to spill over to 2026, though the magnitude of gains may be milder.
The ringgit’s continued outperformance in recent sessions was due to a conducive external environment brought about by the US Federal Reserve’s (Fed) easing cycle, a more benign greenback environment, relatively steady Chinese yuan and risk-on sentiment owing to renewed optimism on artificial intelligence (AI), she added.
Moreover, Ling said policymakers’ constructive messaging, including earlier comments that USD/MYR could trade "just below 4” by mid-2026, has also contributed to the more positive sentiment. This has already played out, she noted, and that external conditions remain supportive.
"A more resilient Chinese yuan continues to anchor stability in the ringgit while the Fed, in the midst of its easing cycle, should continue to provide a constructive backdrop,” she added.
OCBC Group Research has maintained its conservative 2026 gross domestic product (GDP) growth forecast of 3.8 per cent compared to 4.8 per cent in 2025.
"Our GDP growth profile suggests that the weakness in growth will be gradual to 3.9 per cent in 1H26 and 3.8 per cent in 2H26. That said, the AI- and data-centre boom has turbo-charged growth in 2025, and if that sustains this year, there may be upside risk to growth,” Ling said. - Bernama
