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MARC Ratings has widened its year-end ringgit forecast to between 3.92 and 4.07 against the US dollar by year-end, citing the escalation of the US-Israel-Iran conflict, which has effectively erased market expectations for a US Federal Funds Rate cut in 2026.
The rating agency noted that heightened risk aversion from the systemic shock to global energy markets has recalibrated the ringgit’s trajectory, which was previously expected to trade within a tighter 3.88–3.98 range.
The revised currency outlook follows the closure of the Strait of Hormuz, a key passage handling roughly 20% of global oil supply, which briefly pushed Brent crude prices above US$100 per barrel.
MARC Ratings has raised its 2026 average Brent forecast to US$70–80 per barrel, up from the previous US$60–70 range, though it expects prices to gradually moderate.
This is supported by the coordinated release of 400 million barrels from the International Energy Agency’s strategic reserves to ease the initial supply shock.
MARC Ratings noted that global inflationary pressure has also shifted monetary expectations.
Markets that had previously priced in at least two US rate cuts are now bracing for a “higher-for-longer” environment, strengthening the greenback and weighing on emerging market currencies.
As a result, it believes that Bank Negara Malaysia is widely expected to maintain the Overnight Policy Rate at 2.75% for the rest of the year, balancing growth support with inflation control.
Despite external volatility, MARC Ratings remains cautiously optimistic about Malaysia’s economic resilience.
The agency maintains a baseline gross domestic product (GDP) growth forecast of 4.6% for 2026, while noting a potential downside risk of 0.2–0.4% depending on the conflict’s duration.
Headline inflation is projected at around 2%, although market-linked diesel and jet fuel prices may drive secondary inflation.
The impact is cushioned by the transport component, which accounts for roughly one-tenth of the Consumer Price Index basket.
MARC Ratings noted that the local bond market has shown significant depth, with RM18.2 billion in net inflows recorded in the second quarter of 2025 despite a 26.6% quarter-on-quarter surge in the Geopolitical Risk Index.
MARC Ratings noted that the 10-year Malaysian Government Securities yield has been adjusted to 3.55–3.60%, while Malaysia’s fiscal position remains disciplined.
The fiscal deficit-to-GDP ratio is projected to stay below 4%, even as targeted subsidies help cushion the broader economy from volatile energy costs, it said.
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