Malaysia’s international reserves rose to near a 12-year high at the end of May, supported by higher foreign currency assets and a strengthening ringgit, despite significant foreign portfolio outflows amid heightened geopolitical tensions and volatile global financial markets.
According to a report by Kenanga Research, Bank Negara Malaysia’s (BNM) international reserves increased by US$0.9 billion, or 0.7% month-on-month, to US$130.6 billion as of May 29, approaching levels last seen more than a decade ago.
The reserve position remained adequate to finance 4.6 months of imports of goods and services, slightly lower than April’s 4.7 months, while the reserves-to-short-term external debt ratio held steady at 0.9 times.
The increase was largely driven by a rise in foreign currency reserves, which climbed US$0.9 billion, or 0.8%, to US$114.7 billion during the month.
Kenanga noted that the improvement came despite sizeable foreign capital outflows from Malaysian financial markets in May.
Net foreign exchange reserves rose to US$81.1 billion in April from US$77.7 billion in March, marking the highest level in nearly four years. The increase was supported by a decline in predetermined short-term foreign currency obligations, which fell to US$32.7 billion from US$33.1 billion, mainly due to lower foreign currency loans, securities and deposits.
Meanwhile, BNM’s net short foreign exchange forward position widened to US$24.5 billion from US$23.2 billion in March, indicating continued intervention efforts to smooth excessive currency market volatility.
Other reserve assets, including gold holdings, Special Drawing Rights (SDRs), and Malaysia’s reserve position with the International Monetary Fund (IMF), remained broadly unchanged during the period.
In ringgit terms, total reserves increased by RM3.6 billion, or 0.7%, to RM527.2 billion, reaching their highest level in a year.
The ringgit also recovered some ground against the US dollar during May, appreciating 0.6% to average RM3.95 per US dollar compared with RM3.98 in April.
The local currency initially strengthened to around RM3.91 against the greenback in early May amid optimism over potential de-escalation of tensions in the Middle East. However, gains were partially reversed later in the month after US-Iran negotiations stalled and stronger-than-expected US inflation data reinforced expectations that the US Federal Reserve would maintain a restrictive monetary policy stance for longer.
Rising US Treasury yields and renewed geopolitical uncertainty subsequently pushed the ringgit back toward the RM3.95-RM3.98 range by month-end.
Among ASEAN currencies, the ringgit and Singapore dollar were the only major regional currencies to strengthen against the US dollar in May, rising 0.6% and 0.1% respectively. Indonesia’s rupiah led regional losses with a 2.5% decline, followed by the Philippine peso at 1.8% and the Thai baht at 0.6%.
Kenanga attributed the resilience of the ringgit to Malaysia’s relatively strong fundamentals and improving reserve position, even as elevated oil prices, geopolitical tensions and higher US yields continued to support demand for the US dollar globally.
Looking ahead, the research house expects BNM to maintain the Overnight Policy Rate (OPR) at 2.75% throughout 2026, citing contained inflation and resilient domestic economic growth.
While headline inflation remains benign, Kenanga warned that prolonged disruptions around the Strait of Hormuz could pose upside risks through higher imported fuel, fertiliser and logistics costs.
“Policy stability is expected to remain BNM’s central objective, with heightened external uncertainty and a relatively resilient ringgit providing sufficient flexibility for the central bank to remain on hold,” the report said.
Kenanga maintained its year-end 2026 forecast for the ringgit at RM3.95 against the US dollar, compared with RM4.06 at the end of 2025.
The research house said its constructive medium-term outlook for the ringgit is underpinned by expectations of broader US dollar weakness arising from global reserve diversification, portfolio reallocation trends and growing concerns over US fiscal sustainability.
Domestic factors also remain supportive, with foreign currency deposits reaching a record RM305.8 billion in April, indicating significant potential for future conversion into ringgit-denominated assets.
However, Kenanga cautioned that risks have become more balanced, noting that ongoing Middle East tensions could sustain elevated oil prices, inflation expectations and US dollar demand, while domestic political developments are emerging as an increasingly important factor influencing investor sentiment.
