KUALA LUMPUR: Headline inflation is expected to remain moderate, averaging between 1.5 per cent and 2.5 per cent in 2026 despite greater global commodity price volatility amid the West Asia conflict, said Bank Negara Malaysia (BNM).
In the Economic and Monetary Review 2025 report released today, BNM said a stronger exchange rate could provide some support in containing import prices.
"Domestic policy measures will also help mitigate the pass-through of global cost pressures to domestic prices.
"In turn, cost pressures faced by firms are expected to remain manageable, with pricing behaviour remaining generally cautious across the retail and services segments,” said the central bank.
Overall, these developments point to a relatively contained inflation path over the course of the year, it added.
BNM said core inflation is projected to average between 1.8 per cent and 2.3 per cent in 2026, consistent with expectations of economic activity remaining in line with potential, without generating material demand-driven inflationary pressures.
Upside risks include import-sensitive sectors like food, which may face higher costs due to higher input costs from elevated global commodity prices, and some producers and retailers could opportunistically raise prices.
On the downside, it said weaker global demand could weigh on domestic activity, while softer global commodity price developments could lower imported costs and ease inflationary pressures.
"Exchange rate developments would also have a bearing on imported cost pressures, which could affect inflation outcomes,” it said.
On monetary policy, BNM said it will remain focused on fostering conditions that support sustainable economic growth while keeping inflation contained.
Emphasising that inflation is projected to remain moderate, BNM cautioned that upside risks could stem from renewed external cost pressures, while downside risks may arise from softer global growth and more moderate domestic demand conditions.
In 2026, BNM’s monetary policy decisions will continue to be guided by the Monetary Policy Committee’s (MPC) assessment of risks to Malaysia’s inflation and growth outlook.
On domestic financial markets, BNM said they are expected to remain broadly favourable, supported by generally accommodative global financial conditions and Malaysia’s strong economic fundamentals.
In the bond market, it said Malaysian Government Securities (MGS) yields are expected to remain broadly supported by the global interest rate environment and gradual foreign inflows.
Meanwhile, domestic equity market performance is expected to be underpinned by improving investor confidence, supported by Malaysia’s positive growth prospects, it said.
"Financing conditions will remain supportive in 2026, underpinned by sustained credit growth amid continued economic expansion and conducive borrowing conditions,” it added. - Bernama
