Bank Negara Malaysia reports May inflation at 2 percent as manufacturing output and private sector credit growth strengthen

Bank Negara Malaysia’s latest monthly highlights showed headline inflation edged up to 2% in May from 1.9% in April, while core inflation held at 2%. The increase in headline inflation was driven mainly by non-core items, with higher vegetable and electricity prices, including an electricity surcharge linked to higher generation costs, partly offset by lower inflation for domestic air travel and retail fuel, particularly RON97 and diesel. Broader activity and credit indicators strengthened. The Manufacturing Industrial Production Index grew 8.3% in April, up from 5.5% in March, with export-oriented production supported by electrical and electronics and primary-related products, while domestic-oriented production picked up on motor vehicles, food processing and construction-related materials. Credit to the private non-financial sector rose 6.4% from 5.8%, led by stronger business financing through corporate bonds and business loans, while household loan growth was steady at 5.5%. Banks’ gross and net impaired loan ratios were broadly unchanged at 1.4% and 1%, and the banking system’s aggregate Liquidity Coverage Ratio remained high at 149.2% despite easing from 152.8% in April. Financial markets remained shaped by uncertainty over the Middle East conflict and shifts in expectations for the US Federal Reserve policy path. Against that backdrop, the ringgit appreciated 0.1% against the US dollar and broadly outperformed regional currencies, the 10-year Malaysian Government Securities yield fell 1 basis point on domestic investor demand, and the FBM KLCI declined 2.3% amid non-resident outflows.