Introduction

“Selamat datang ke sidang akhbar Bank Negara Malaysia mengenai Laporan Tahunan, Tinjauan Ekonomi dan Monetari, serta Tinjauan Kestabilan Kewangan.”

‘Welcome to the Bank Negara Malaysia’s (BNM) press conference on the Annual Report, the Economic and Monetary Review, and the Financial Stability Review.

The global economy is being shaped by major shifts

‘Allow me to start by setting the broader global context that we now operate in.

The global economy and our operating environment are being shaped by several major shifts. Geopolitics is no longer a backdrop to economic outcomes, but one of the main drivers. The model for international trade and rules of engagement are rapidly changing. Economic decisions are increasingly shaped by national security, technological competition and supply-chain resilience.

‘The result is a world that is more geopolitically fragmented but remains economically connected. Not only does this heighten uncertainties, but as the chart shows, shocks are now transmitted more quickly in this global landscape.

The rise of tariffs

‘We could see this shift in the rise of tariffs. In 2025, countries faced the prospect of sharp increases in US tariffs, with some proposals exceeding 20%. Much to our relief, the realised outcome was less severe than initially feared. Pauses, exemptions and negotiations softened the immediate impact, while front-loading boosted near-term trade volume. But the broader direction is clear: US tariffs are now embedded in the global policy landscape. Firms now make investment decisions under persistent trade policy uncertainty. Supply chains are redesigned for resilience and strategic alignment, not just for efficiency and scale. Over time, this poses higher costs and a drag to global trade and investment.

Energy risk amplified through geopolitical flashpoints

‘The second outcome – the resurgence of energy risk – amplified through geopolitical flashpoints. The conflict in the Middle East shows how quickly geopolitical events can spill into energy markets. The impact depends on the duration of conflict, the extent of damage to key infrastructure, in particular, and the degree of disruption to global logistics.

‘How is this transmitted to the world economy? First, higher oil prices and shipping insurance premiums raise costs, pushing inflation higher. Second, supply chain disruptions affect cross-border flows of goods and services, especially critical inputs for key sectors, weighing on growth and trade. And third, financial markets respond with higher risk aversion and tighter financial conditions. The negative impact on the global economy could also be amplified by weaker sentiments. But we must also recognise that global energy sources are more diversified now and that strategic reserves are sizeable. These ought to help mitigate some of the impact from the conflict.

Continued surge in technology investments

‘Nonetheless, we also see the continued surge in technology investments. Rapid advances in artificial intelligence are driving strong demand for semiconductors, data centres and digital infrastructure. Some experts view that we are still in the early days of this technological advancement. This investment cycle has become a major source of support and a key reason the world economy has fared better than we expected.

‘In light of the challenges and heightened uncertainties, the global economy is expected to grow more moderately in 2026 at around 2.7 to 3.2%. Notwithstanding tariffs and geopolitical uncertainties, three factors should continue to support global growth. First, sustained domestic demand. Second, supportive macroeconomic policies. And third, continued strong investment in technology, particularly in AI-related infrastructure. We recognise that the outlook is highly uncertain, with the balance of risks tilted to the downside.

Challenging global landscape, yet Malaysia navigated 2025 well

‘Let me now turn to Malaysia. Although the year 2025 was extremely challenging, the domestic economy navigated it very well. Growth reached 5.2%, while inflation remained low at 1.4%. Domestic demand stayed firm, and exports showed resilience. Credit to the private non-financial sector grew by 5.4%, with SME financing expanding by 5.9%. Of significance, the ringgit steadily strengthened throughout 2025.

The ringgit performed well in 2025

‘Continuing from 2024, the ringgit, once again, performed well in 2025, appreciating against the US dollar and key trading partners. Global factors, such as the dollar performance, played a role, but so did our domestic strength. Year-to-date, this positive trajectory has continued, although recent developments are causing some movements. Going forward, the ringgit will remain driven by market conditions and global forces. Towards this end, BNM remains committed to ensuring orderly markets.

Malaysia enters 2026 from a position of strength

‘This brings us to the outlook. Malaysia enters 2026 from a position of strength to navigate the challenges ahead. Our strength lies in: First, diversified growth drivers, with cushions to preserve external sector strength. Second, the healthy balance sheet positions among households and firms. Third, a strong financial sector that supports the economy to grow. And fourth, sufficient macroeconomic policy space, both monetary policy and fiscal policy. Taking into account all these factors, the Malaysian economy is expected to grow at a resilient pace of between 4% and 5% in 2026.

‘Now, let’s look at the drivers of growth. Household consumption remains a key anchor of growth. Income prospects are positive, with continued income growth.

Labour market remains firm, with unemployment expected to remain near its decade-low at around 2.9%. Targeted policy supports are also in place to help Malaysians in need.

‘On investments, the positive news is that investment approvals continued to increase, reaching RM427 billion in 2025, while the implementation rate for manufacturing projects remains high at around 85%. Clear policies and incentives, a diversified supply chain and strong infrastructure, as well as a skilled workforce, are among the factors attracting investors. We see private-sector capacity expansion gaining traction, led by the ICT and E&E industries. We also see progress under national masterplans and major public investments, including renewable energy and transportation projects. The realisation of these investments will strengthen Malaysia’s productive capacity for the future.

‘Moving on to trade. With external conditions uncertain and challenging, real export growth is expected to be moderate at 2.8%. Despite the headwinds, there are three points worth noting. One, we have a diversified export base. No single country accounts for more than 16% of our exports. Across products, Malaysia also exports different goods and services, from commodities to advanced services. Two, rising data-centre investments, lifting ICT services exports with wider spillovers across industries. And three, supported by its deep roots and linkages, our E&E sector is well-positioned to gain from the global tech investment cycle. Not many countries can showcase such a diversified external sector.

‘I want to spend a moment on how well our E&E industry has advanced. If we think of GPUs as the ‘brains’ of AI, Malaysia supplies the nervous system and other vital organs to the brain: everything from power chips, which is the heart, optical transceivers, the eye, and high-speed connectors, the nerves. While Malaysia continues to gain a steady foothold in the leading-edge chip fabrication segment, the country is strengthening its capabilities in advanced packaging and front-end activities. This will keep us competitive beyond the current E&E cycle.

‘Tourism also stands out as a source of strength for the economy. Last year, the tourism industry helped turn a 14-year deficit of the country’s services account into a surplus. This momentum is expected to continue this year. In conjunction with “Visit Malaysia 2026”, steady visitor arrivals this year, particularly from Asia, will generate positive spillovers across retail, transport and hospitality. However, a word of caution: developments in the Middle East could pose downside risks to these projections.

‘Moving on to the inflation outlook. In 2026, headline inflation is projected to be between 1.5 and 2.5%. Given the external developments, global cost conditions are uncertain at this juncture. However, underlying inflation is expected to be broadly stable amid steady domestic demand and economic activity. Domestic policy measures will also help limit the pass-through of global cost pressures on domestic prices.

Outlook remains subject to uncertainties, notably external ones

‘Let us move to the risks to growth and inflation. We enter 2026 from a position of strength, but strength does not mean total immunity. There are key risks to the growth outlook that we must continue to monitor, assess and manage. Downside risks are mainly external in nature, arising from slower global trade due to the Middle East conflict and tariffs, alongside lower commodity output. On the Middle East conflict, the situation is highly fluid. Developments on this front change by the day. The effects on the world and Malaysia will depend on the length and the severity of the conflict. There is, however, some upside potential that could arise from better global growth, stronger E&E demand and more robust tourism. As for inflation, upside risks stem mainly from external factors driven by geopolitical uncertainties.

Monetary policy plays a part in safeguarding economic resilience

‘Now onto monetary policy. Our economy can face the headwinds coming our way. But monetary policy will continue to play its part to safeguard this resilience. Last July, we lowered the OPR by 25 basis points. This was to pre-emptively ensure support is in place should pressures intensify. As we move into 2026, our focus remains clear. This is to maintain price stability while fostering conditions that support sustainable growth. The Monetary Policy Committee (MPC) will stay vigilant to emerging risks, with decisions guided by assessments of risks to Malaysia’s economic outlook.

Malaysia’s financial system supports the economy despite uncertainties

‘I have shared at length on growth prospects – it is resilient and broad-based. Crucially, the financial system is in a good position to support this growth momentum forward. What do I mean by this? First, we have a financial system that can withstand shocks, ensuring financial intermediation continues even under stress, and second, our financial sector is stepping up to meet the needs and challenges of the modern economy. Let me elaborate.

Banking system with healthy buffers

‘First, banks and insurers continue to operate with strong capital positions and ample liquidity, providing a stable foundation for the economy. Every year, we put them through stress tests to gauge their resilience. This year’s results
showed that even under stress scenarios that are more severe than the Global Financial Crisis and the 2020 pandemic situations, banks’ aggregate capital ratio remains well above the regulatory minimum. What does this mean? This means that banks have the buffers to absorb losses and, even in challenging conditions, they can continue lending and supporting financial intermediation. Similarly, insurers also demonstrate the ability to withstand shocks while providing protection to households and businesses.

Borrowers with sound repayment capacity

‘Now, turning to borrowers. The overall repayment capacity of businesses and households is sound, with the share of risky and impaired loans remaining low.

The majority of businesses are able to meet their debt obligations, while pockets of stress among a small segment of MSMEs remain contained. Households, too, have healthy and stable debt-servicing ratios, with limited signs of broad-based stress.

Continued financing to fuel a resilient economy

‘Resilience also means credit continues to flow to power the economy. Even amid uncertainty in the recent period, access to new financing remains intact for both households and businesses. Banks continue to extend credit, mainly for working capital and investment, supported by a strong balance sheet and prudent lending standards. This reflects the financial system’s key role in supporting adjustment and growth, rather than amplifying stress.

Financial sector is stepping up to confront challenges today and in the future

‘Yet, resilience alone is not enough. This brings me to the second point: we have a financial sector that is stepping up to confront today’s challenges and future-proofing Malaysia’s economy going forward. To this end, there are four main areas we have been putting our weight on: First, risk protection reforms to tackle structural challenges in the insurance and takaful industry. Second, advancing value-based finance to drive sustainable and inclusive growth. Third, further modernising our payment systems for people to use safely and affordably. And fourth, strengthening fraud prevention and safeguards against illicit activities.

RESET to tackle structural drivers of healthcare costs

‘In June 2025, along with the Ministry of Health and the Ministry of Finance, the RESET initiative was launched as a long-term response to address the underlying drivers of healthcare costs. In 2026, the focus will be on implementation, which includes:

1. Rolling out the pilot for the base MHIT plan;
2. Transitioning to Diagnosis-Related Group (DRG)-based payments;
3. Strengthening private healthcare regulation;
4. Standardising hospital billing practices as part of transparency; and
5. Accelerating interoperable digital medical records.

‘As for motor insurance, with the foundations in place through e-police reporting and digital roadside assistance, the priority now is execution – translating these initiatives to real-world adoption and better consumer outcomes – through stronger accountability and collaboration across the ecosystem.

Today’s finance for tomorrow’s sustainable and inclusive growth

‘A word on value-based finance. Value-based finance aligns financial services with societal outcomes, promoting sustainable and ethical financing beyond profit maximisation. Our focus on this front is clear: harnessing today’s finance to ensure tomorrow’s growth is sustainable and inclusive. Of note, Islamic Finance has pioneered value-based intermediation (VBI)-aligned initiatives since 2017, supporting MSMEs, the green economy and underserved communities. Looking ahead, we are working hard to expand value-based finance to the entire financial system by empowering businesses through innovative value-based solutions, scaling sustainable and social finance, supporting an inclusive transition to greener practices, as well as building resilience against climate-related events.

Consumers and businesses today can transact in many ways

‘Inclusion today is not just about access, it is also about safety and affordability.

Malaysia’s digital payments ecosystem has expanded tremendously, allowing consumers today to transact through various forms of digital payments. For businesses, especially small ones, this means easier access to digital payments, as they have broadened consumer reach and managed cash more conveniently. Advances in E-payment adoption now place Malaysia second globally. To future-proof this progress, we will continue to modernise the payments infrastructure, including testing real-world use cases for tokenised deposits and stablecoins through our Digital Asset Innovation Hub.

Fraud prevention and strengthened safeguards against illicit activities are showing results

‘As payments digitalise, fraud risks evolve. Preventive measures, such as the deployment of more advanced fraud detection and strengthening malware defences, are showing results with RM1.2 billion in fraud losses averted in 2025. This is 12 times higher than the actual losses reported to BNM. The National Scam Response Centre (NSRC), now under PDRM and MCMC, enables a faster response at scale. Malaysia’s upgrade to the highest tier in the FATF Mutual Evaluation also reinforces international confidence in our financial system as safe, credible and transparent.

Financial Sector Blueprint

‘In summary, Malaysia has a financial system that does not just withstand shocks, but also enables growth, protects trust, and evolves with the needs of people and the economy. With the current Financial Sector Blueprint coming to an end, we are working on the next plan to set priorities for a more dynamic and competitive financial system. Our early thinking is moving in three broad directions. First, how finance can do more to catalyse resilient and dynamic growth. Second, how do we strengthen the foundations for the coming decade. And third, how can we provide clearer policy direction in the areas that matter most, such as innovation. In the coming months, we will be engaging a wide range of stakeholders from financial sector players to everyday rakyat for insights that can sharpen the strategies for the next blueprint.

Structural Reform Priorities

‘Before I stop, I would like to touch on my favourite topic, Structural Reform Priorities, which are critical to Malaysia. Over the years, BNM has been a strong advocate of structural reforms. Much of today’s economic strengths are the results of reforms of the past. Some recent measures, such as fiscal governance, investment policies, energy tariff realignments and BUDI95, address long-standing distortions and strengthen our long-term growth foundations. With this groundwork in place, Malaysia’s path forward should rest on several key priorities.

‘First, building external resiliency given a more fragmented and tech-driven world. We must continue to invest in AI- and tech-ready infrastructure, gearing up for future global challenges. Second, labour market reforms, strengthening talent retention and raising income do address cost-of-living pressures. Third, advancing social protection to lift our people through upward-mobility pathways and a more targeted and integrated assistance system. This is an important area to enhance our socio-economic fabric to create a more resilient and equitable environment and improve the overall well-being of the rakyat. Fourth, mobilising financing for new growth sectors. Ensuring efficient financing flows to priority sectors is crucial to support innovation and drive Malaysia’s next phase of growth.

‘BNM has recently established the Financing Sector Engagements (FSE) platform to develop practical financing solutions for key economic sectors. This will support more catalytic financing, which will enable banks to play a stronger role on this front.

Seven analytical box and feature articles across our publications

‘We articulate our findings, analysis, and policy thinking publicly. Across the three flagship publications, we feature seven box articles that address key issues, ranging from everyday inflation experiences and trade turbulence to topics on inclusion and trust in finance. I invite you to explore them.

‘Let me summarise before I finish: Global uncertainty will shape the road ahead. That is certain. However, by sustaining domestic demand, steadily executing investments and reforms, and ensuring a resilient, inclusive financial system, Malaysia is well-positioned to meet this challenge with confidence.

‘Finally, I would also like to take this opportunity to express my heartfelt appreciation to the Board of Directors and our partners, from Government agencies and industry players in the country to international counterparts, whose shared purpose and collaboration have been instrumental in advancing our collective goals.

To all my BNM colleagues, Terima Kasih for your professionalism, dedication and quiet commitment to public service. Your work — often unseen — makes a real difference to households, businesses and communities across the country.

The challenges ahead will require continued cooperation, trust and resolve. By working together, we can ensure that the financial system remains a strong enabler of economic progress and social wellbeing. We owe this collective effort to the 34 million Malaysians we serve, today and beyond.’

Kindly attribute the presentation transcript to
Bank Negara Malaysia Governor Dato’ Sri Abdul Rasheed Ghaffour.