KUALA LUMPUR (March 31): Malaysia’s headline inflation is projected to average between 1.5% and 2.5% in 2026, up from 1.4% in 2025, reflecting higher external cost pressures amid a more uncertain global environment, according to Bank Negara Malaysia (BNM).

The 2026 projection suggests an uptick in price pressures compared with last year, when inflation came in the lower range of BNM’s earlier forecast of 1.3% to 2.0%.

BNM said inflation in 2026 is expected to remain “moderate and close to its long-term average”, supported by domestic policy measures and a relatively stable underlying demand environment.

“Cost pressures faced by firms are expected to remain manageable, with pricing behaviour remaining generally cautious across the retail and services segments,” it said in its Economic and Monetary Review 2025 report released on Tuesday.

The central bank noted that while global commodity prices may experience greater volatility, particularly amid ongoing geopolitical tensions in the Middle East, the pass-through to domestic inflation is expected to be contained.

A stronger exchange rate is expected to help moderate imported cost pressures, while targeted policy measures will cushion the impact of higher global prices on consumers and businesses.

Core inflation, which excludes volatile items, is projected to remain stable at between 1.8% and 2.3% in 2026, broadly in line with its long-term average.

BNM said this reflects expectations that economic activity will remain close to potential, without generating significant demand-driven price pressures.

On monetary policy, BNM said its Monetary Policy Committee (MPC) will continue to calibrate policy settings based on evolving risks to both growth and inflation.

“The MPC aims to maintain a monetary policy stance that is supportive of economic activity, while preserving price stability,” the report said.

The central bank added that monetary policy will remain data-dependent, with decisions on the Overnight Policy Rate (OPR) guided by incoming economic and financial developments.

Last year, the OPR was reduced once by 25 basis points to 2.75% in July 2025, said to be a "pre-emptive measure" to safeguard Malaysia’s growth momentum while maintaining price stability.  

BNM also indicated that domestic financial conditions are expected to remain supportive of growth, underpinned by sustained credit expansion and favourable borrowing conditions.

On the global front, the disinflation trend seen in recent years is expected to face renewed uncertainty in 2026.

BNM said geopolitical tensions, particularly in the Middle East, could disrupt energy markets and supply chains, raising the risk of higher inflation through increased energy and transportation costs.

In addition, tariff-related measures are expected to exert upward pressure on prices, especially in the United States, while services inflation in advanced economies may remain sticky due to persistent wage pressures.

The central bank cautioned that risks to the inflation outlook remain tilted to the upside, particularly if supply disruptions intensify or global commodity prices rise further, although weaker global demand could provide some offset to price pressures.

Click here to read more stories on BNM Annual Report 2025.