Malaysia’s economy remained stable in May 2025, with encouraging signs of lower inflation, rising industrial output, steady loan growth, and a healthy banking system.
These updates were shared by Bank Negara Malaysia (BNM) in its latest monthly report on monetary and financial developments, released on 30 June 2025.
One of the main highlights was the continued decline in inflation. The country’s headline inflation rate which reflects the overall rise in consumer prices eased to 1.2% in May, compared to 1.4% in April.
At the same time, core inflation which excludes items with more volatile prices such as food and fuel also moderated to 1.8%, from 2% in the previous month.
BNM explained that the drop in inflation was due to lower prices in specific non-core items, especially fresh vegetables and petrol, following the global trend of falling commodity prices. Meanwhile, the decline in core inflation was driven by cheaper costs in rental and streaming services.
In the industrial sector, the country recorded stronger performance, particularly in manufacturing. The Industrial Production Index (IPI) for manufacturing showed a robust growth of 5.6% in April, compared to 4% in March.
Much of this growth came from export-oriented industries, which expanded by 6.4%. This was supported by increased production of electrical and electronics (E&E) goods, as well as consumer products such as vegetables and animal-based oils and fats.
Domestically, local-focused industries also saw higher growth, expanding by 3.9% in April. This increase was led by more production in food processing and construction-related materials like basic and fabricated metals, showing strong demand in local markets.
The credit market also remained active and stable. Total credit to the private non-financial sector grew by 5.4% in May, the same rate as in April.
Within this, business loans grew faster, rising to 5% (from 4.4% in April), largely due to higher demand for working capital, especially from non-SME businesses.
Loans for investment purposes remained stable. On the household side, loan growth held steady at 6%, with consistent activity across housing, car, and personal loans.
BNM also commented on how global events influenced Malaysia’s financial markets. In May, financial conditions improved slightly worldwide after the United States announced a 90-day pause on trade tariffs, which reduced some concerns in the market. However, investors continued to remain cautious, as uncertainties around US trade policy and the risk of a global slowdown persisted.
During this time, the Malaysian ringgit appreciated by 1.9% against the US dollar, as the greenback weakened broadly.
However, the local stock market declined, with the FBM KLCI falling by 2.1%, slightly more than the regional average. On a positive note, foreign investors returned to the domestic bond market, pushing down the 10-year Malaysian Government Securities (MGS) yield by 14 basis points.
On the banking front, Malaysia’s financial institutions remained strong and well-buffered. The overall Liquidity Coverage Ratio (LCR) , a key measure of banks’ short-term financial strength, stood at a healthy 150.4% in May, despite a slight dip from 156.1% in April. The loan-to-fund ratio also saw a small increase to 83.6%, reflecting continued demand for financing.
In terms of asset quality, the banking system stayed resilient. Although the gross impaired loans ratio (a measure of problem loans) edged up slightly to 1.5%, the net impaired loans ratio remained unchanged at 0.9%, indicating that banks were managing risks effectively. The loan loss coverage ratio, which shows how much protection banks have set aside for bad loans, was at a prudent level of 128.9%.
Overall, Bank Negara’s report paints a picture of an economy that remains on stable footing. While global challenges particularly those related to US trade policy continue to pose some risks, Malaysia’s domestic demand, production, and financial system show positive momentum.
Shahriena Shukri is a journalist covering business and economic news in Malaysia, providing insights on market trends, corporate developments, and financial policies. More about Shahriena Shukri.
