Headline inflation edged higher to 2% in May 2026 from 1.9% in April, while core inflation remained stable at 2%, according to Bank Negara Malaysia’s (BNM) latest Monthly Highlights report.
BNM said the marginal increase in headline inflation was mainly driven by price movements in non-core items, particularly higher prices for vegetables and electricity.
The increase in electricity prices was attributed to the implementation of a surcharge following higher generation costs.
However, these pressures were partly offset by lower inflation in domestic air travel and retail fuel prices, particularly RON97 petrol and diesel.
Average retail prices for RON97 declined to RM4.81 per litre in May from RM5.06 per litre in April, while diesel prices fell to RM5.01 per litre from RM5.92 per litre during the same period.
Diesel prices in Sabah and Sarawak remained subsidised at RM2.15 per litre.
Malaysia’s manufacturing sector recorded stronger growth, with the Manufacturing Industrial Production Index expanding 8.3% in April 2026 compared with 5.5% in March.
BNM said export-oriented clusters grew 8.5%, supported by stronger production in electrical and electronics (E&E), as well as primary-related industries including refined petroleum and chemical products.
Meanwhile, domestic-oriented clusters accelerated significantly, growing 8% compared with 2.8% previously.
The improvement was driven by higher output in motor vehicles, food processing products and construction-related materials.
Credit growth to the private non-financial sector improved to 6.4% in May from 5.8% in April, supported mainly by stronger business financing activity.
Outstanding corporate bonds expanded by 8%, while business loans grew 7%, compared with 6.2% growth recorded in April.
BNM said business loan growth was mainly driven by financing for working capital requirements, while investment-related lending remained broadly stable.
Household loan growth was sustained at 5.5%, supported by steady expansion across most lending purposes.
The central bank said Malaysia’s banking sector continued to maintain sound asset quality, with gross and net impaired loan ratios remaining broadly unchanged at 1.4% and 1% respectively.
The stability was supported by steady impairment levels and continued loan growth.
Banks also maintained strong liquidity buffers, with the overall Liquidity Coverage Ratio (LCR) recorded at 149.2% in May, compared with 152.8% in April.
BNM said the banking system remains well-positioned to withstand potential liquidity shocks.
Financial markets continued to be influenced by geopolitical uncertainties, particularly developments surrounding the Middle East conflict, as well as shifting expectations over the US Federal Reserve’s monetary policy path.
However, sentiment improved during the month amid optimism over a possible resolution to the conflict.
Against this backdrop, the ringgit strengthened slightly by 0.1% against the US dollar, outperforming regional currencies which declined by an average of 0.7%.
The 10-year Malaysian Government Securities (MGS) yield remained broadly stable, easing marginally by 1 basis point, supported by domestic investor demand.
Meanwhile, the FBM KLCI declined 2.3% in May amid continued non-resident outflows, although the decline was smaller compared with the regional average fall of 4.6%.
BNM said economic conditions remain supported by resilient domestic activity, improving manufacturing momentum and stable financial system conditions, while external developments continue to shape market sentiment.
