03 / OUR VALUE CREATION APPROACH 01 02 04 05 06 07 08 09 27 ECONOMIC REVIEW previously, as the government maintains the RON95 pump price and provides cash assistance to diesel vehicle operators. That said, upside risks are gradually building. Every US$10 sustained increase in oil prices is estimated to add approximately seven basis points to annual CPI, and under a scenario where Brent holds around US$100 per barrel and RON95 is adjusted to RM2.40 per litre or higher, headline inflation could exceed 3.0%. Higher SST rates, rising operating costs outside targeted schemes, and the planned multi-tier migrant levy add further modest upward pressure. Against this backdrop, the 2026 CPI is forecast to expand to 2.1% (2025: 1.4%), reflecting the Middle East energy shock premium over and above the structural cost pressures already embedded in the outlook. • Global Monetary Policy: Global monetary policy have become sharply more differentiated since the Middle East conflict began, forcing most major central banks into extended pauses. The Federal Reserve is expected to maintain the federal funds rate at a target range of 3.50% to 3.75% through the first half of the year, revising its inflation projections higher and signalling one cut at most in 2026, deferred to 2H26 at the earliest, with some members flagging the possibility of hikes if energy-driven inflation becomes entrenched. The leadership transition adds further uncertainty to the policy path. The European Central Bank has moved firmly to the sidelines at 2.0%, with the energy shock pushing its 2026 inflation forecast higher and growth projections lower, leaving no near-term basis for easing. The Bank of England faces the most acute bind, with CPI expected to surpass 3.0% on higher energy costs, pushing the first cut back to no earlier than June. The Bank of Japan remains the sole major central bank on a tightening path, pressing ahead with gradual rate increases as wage-driven inflation becomes entrenched. The People’s Bank of China is expected to deliver modest, targeted easing amid sluggish domestic demand. Collectively, prolonged restrictiveness in the West, tightening in Japan, and cautious easing in China keep emerging markets financing conditions tight and dollar strength entrenched well into 2H26. • BNM Policy Direction: BNM is expected to keep the OPR at 2.75% throughout 2026, though the policy calculus has shifted materially since the onset of the Middle East conflict. With the CPI likely to climb above 2.0% in 2026, approaching the upper end of BNM’s own 1.5%–2.5% official range, the characterisation of monetary policy as straightforwardly accommodative is no longer appropriate. Domestic demand remains firm and the labour market stable, providing little justification for further easing, while the energy-driven inflation shock limits the scope for rate cuts without risking a re-anchoring of expectations higher. BNM’s policy stance is best described as cautiously neutral, balancing growth support against the risk of imported inflation from elevated global energy prices. • Ringgit Outlook: The ringgit is expected to remain resilient amid global portfolio rotation. Malaysia’s stable macroeconomic framework, credible fiscal consolidation and attractive risk-adjusted carry continue to support capital inflows. While real yield differentials versus the US remain modest, Malaysia stands out in emerging Asia due to its strong sovereign credit profile, deep bond market and high domestic ownership of government debt. Structural factors, including exporters’ repatriation, higher hedging incentives and expectations of a softer US dollar as the Fed eases, provide added support. We maintain our USDMYR projection at 3.95 by end-2026 (2025: 4.06), framing a constructive medium-term outlook despite episodic global volatility. • Malaysian Government Securities (“MGS”): Demand for MGS and Government Investment Issue (GII) should remain resilient despite a heavier issuance profile. Gross issuance is projected at around RM186.0 billion in 2026 (2025: RM168.5 billion), driven mainly by higher refinancing needs rather than new deficit funding. While the larger auction calendar may intermittently pressure yields, strong domestic participation, sustained foreign inflows and continued fiscal consolidation should offset supply risks. As global liquidity conditions improve alongside possible Federal Reserve easing, the 10-year MGS yield is expected to drift lower towards 3.40% by end-2026. With global growth forecasted by the World Bank to be marginally lower at 2.6% GDP for 2026, and ever-evolving geopolitical risk, the task of creating sustainable growth and long-term value for our stakeholders by Kenanga Group will need to be both innovative and agile. Future enablers such as acceleration in digital innovation, tokenisation and broader adoption of AI, highlighted by catalytic initiatives such as the government’s pledge to invest RM2.0 billion to develop sovereign AI cloud, presents investing opportunities. The agility to respond to thematics including Ringgit strength, Visit Malaysia Year 2026 and the expectation of another vibrant local IPO scene in 2026 will also be key to value creation.
RkJQdWJsaXNoZXIy NDgzMzc=