Malaysia's Inflation Falls to 1.9% as Fuel Prices Ease

Inflation Moderates on Fuel Relief

Malaysia's consumer price growth slowed in June, with both headline and core inflation settling at 1.9%, down from 2.0% the previous month. Bank Negara Malaysia attributed the decline primarily to retreating retail fuel costs, particularly for RON97 petrol and diesel, according to the central bank's June 2026 monthly report.

The moderation reflects easing external cost pressures alongside softer price growth across several core items. Core inflation benefited from base effects related to streaming service price increases that occurred in June 2025, as well as lower inflation for jewellery and watches amid declining global gold prices.

Wholesale and Retail Trade Activity Slows

The Index of Wholesale and Retail Trade decelerated sharply, dropping to 3.1% in May from 6.2% in April, according to Bank Negara. Retail trade growth picked up to 4.4% from 3.9%, driven mainly by non-specialised retail stores and automotive fuel outlets. However, this improvement was outweighed by slower wholesale trade activity and a contraction in the motor vehicle segment, which saw reduced sales and slower growth in specialised wholesale operations.

Credit Growth Holds Steady

Private sector credit remained stable at 6.4% year-on-year in June, supported by sustained expansion in outstanding loans at 6.0% and corporate bonds at 8.1%, up slightly from 8.0% in May. Business loan growth continued its upward trajectory, reaching 7.2% in June from 7.0% in May, fueled predominantly by lending to non-SME borrowers for working capital needs.

Household loan growth edged down to 5.3% from 5.5%, reflecting some moderation in personal use lending. The banking system's asset quality remained resilient, with gross and net impaired loan ratios holding at 1.4% and 1.0% respectively. Loan loss coverage, including regulatory reserves, stood at a prudent 124.6% of gross impaired loans in June, up from 124.1% in May.

Banking Sector Maintains Strong Liquidity

Malaysian banks continued to maintain healthy liquid asset buffers, with the aggregate liquidity coverage ratio improving to 149.7% from 149.2% in May, according to Bank Negara. The central bank noted that the banking system's financial stability indicators remain robust amid evolving global monetary conditions.

Ringgit Weakens as Fed Tightening Expectations Rise

Global market sentiment in June was shaped by growing expectations that the United States Federal Reserve may raise interest rates by the end of 2026. Stronger-than-anticipated labour market data, persistent inflation readings, and updated Fed economic projections fueled these expectations.

The ringgit depreciated 2.6% against the US dollar during the month as the greenback strengthened across global markets. The benchmark 10-year Malaysian Government Securities yield climbed 4.0 basis points amid higher net bond issuances. The FTSE Bursa Malaysia KLCI equity index declined 1.1%, driven by non-resident capital outflows.

Regional Context

Malaysia's inflation trajectory mirrors broader trends across Southeast Asia, where fuel subsidy adjustments and commodity price volatility continue to shape consumer price dynamics. The 1.9% inflation rate remains well below regional peers such as the Philippines and Indonesia, where food and energy costs have driven higher price pressures in recent months.

Bank Negara's data suggests that domestic demand remains resilient despite global monetary tightening, with business lending growth indicating sustained corporate investment appetite. The central bank has kept its overnight policy rate unchanged at 3.00% since May 2023, balancing inflation management with growth support as regional economies navigate uneven post-pandemic recovery paths.