KUALA LUMPUR (July 24): Malaysia may expand at a faster-than-expected pace this year and continue to attract funds into its bonds as the economy shrugs off commodity shock, said DBS.

Growth in the coming quarters is expected to remain resilient with the economy sustained by domestic demand and exports of artificial intelligence goods, helping the economy to expand 5.2% this year, said Chua Han Teng, an economist at the Singapore-based bank.

Malaysia’s status as a net energy exporter is “a key differentiator versus other energy-dependent Asean peers, positioning the economy to weather ongoing external shocks better than most of the region”, Chua said.

The economy has outperformed expectations, with first estimates pointing to the gross domestic product expanding 5.8% in the second quarter from a year earlier, at a time of geopolitical conflict in the Middle East.

The ringgit, meanwhile, has done better than regional peers this year despite recent weakening past the 4.00 mark against the US dollar, and government bonds have remained relatively stable across the curve.

Upside pressures to yields appeared contained, and “we expect this trend to continue”, reflecting investor comfort in rising but benign inflation close to its long-term average, alongside stable monetary policy, and still-contained fiscal pressures, Chua said.

“Malaysia’s financial markets are signalling investor confidence in the economy’s solid domestic fundamentals, even as geopolitical risks in the Middle East linger,” he added.

Bank Negara Malaysia maintained the benchmark interest rate at its monetary policy review earlier this month, saying that its policy stance is still fit for resilient growth and tame inflation. The central bank has stood pat since cutting the policy rate by 25 basis points to 2.75% in July last year.

The latest official forecasts call for the economy to expand between 4.0% and 5.0% in 2026 and for inflation to average 1.5% to 2.5%.