PETALING JAYA: Malaysian Rating Corporation Bhd (MARC Ratings) has upgraded Malaysia’s 2026 gross domestic product (GDP) growth forecast to 5.1% from 4.4%, maintaining an upward bias should third quarter gross domestic product (GDP) sustain the strong momentum following stellar first-half data.
On ther currency front, the rating agency expects the ringgit to trade within the RM4.00-4.15 range against the US dollar by end-2026, revised from the prior forecast of RM3.98-4.07 before the shift in US Federal Reserve (Fed) rate expectations, reflecting a wider Malaysian Government Securities-US Treasury yield differential in favour of the US.
“Nevertheless, record-high exports and sustained foreign direct investment (FDI) inflows should continue to provide support to the currency. Of note, the ringgit was broadly stable in 1H of 2026 and ranked as the second-best performing currency among major Asian peers in 1H of 2026, trailing only the Chinese yuan,” MARC Ratings said.
Elaborating, the rating agency said the global geopolitical uncertainties have effectively catalysed growth drivers in Malaysia, accelerating supply chain investments and infrastructure development, boosting record-high inward tourism, and driving hydrocarbon exports.
These tailwinds complement ongoing strength in FDI, the semiconductor and artificial intelligence (AI) investment upcycle, and resilient private consumption.
The agency also said the US continues to outperform most advanced economies, supported by artificial intelligence (AI)-led investment, resilient domestic demand and structural advantages that reinforce US exceptionalism.
Meanwhile, China remains on track to achieve its revised growth target despite persistent weakness in domestic demand, supported by resilient exports and policy shifts towards industrial upgrading and advanced manufacturing.
MARC Ratings said Malaysia is expected to continue attracting foreign bond inflows in H2 2026, supported by stable domestic fundamentals and ongoing institutional reforms.
However, a more hawkish Fed outlook may moderate the pace of inflows, although MGS yields are expected to remain broadly stable within the 3.60%–3.70% range by end-2026.
On the monetary policy front, MARC Ratings’ baseline expectation is for the Overnight Policy Rate (OPR) to remain unchanged.
However, ongoing geopolitical risks could keep oil prices elevated and pressure inflation.
Additionally, amid strong GDP growth, a reversion to the OPR level that prevailed before the July 2025 pre-emptive rate cut may be considered over time.
Across developed markets, sovereign bonds experienced a broad sell-off in H1 2026, setting the tone for a cautious outlook into H23 2026.
The 10-year US Treasury yield rose by 26 bps to 4.44%, as rising inflation prompted a hawkish repricing of Fed rate expectations while fiscal concerns contributed to higher term premiums.
These factors are expected to keep UST yields elevated in H2 2026, the rating agency said.
Further, in Europe, MARC Ratings said, the German bund curve flattened as growing inflation and tighter European Central Bank policy expectations lifted the three-year bund yield by 28.7 bps, while the 10-year yield increased by 5.8 bps to 2.90%.
It said the flattening pressures are likely to persist amid elevated inflation and subdued growth.
In Japan, the 10-year Japanese government yond yield rose 58 bps and is expected to remain on an upward trajectory, driven by monetary policy normalisation and fiscal pressures.
Across Asean+3, inflationary pressures, tighter monetary policy expectations and a weaker sovereign credit outlook in selected markets weighed on bond market performance in H1 2026.
Indonesia recorded the largest increase in its 10-year yield (+104.9 bps), followed by the Philippines (+83.9 bps) and South Korea (+70.6 bps), while China’s 10-year government bond yield declined by 11.4 bps amid subdued inflation and a dovish monetary policy outlook.
Most regional yields are expected to remain biased upwards in 2H of 2026 as central banks maintain a cautious stance and investors continue to monitor volatile inflation dynamics and sovereign credit developments, MARC Ratings said.
