Financial Markets Committee (FMC) Meeting
10 March 2026
Bank Negara Malaysia

Summary

The meeting discussed recent financial market developments, including implications from the Middle East conflict and improvements in Malaysia’s services trade flows, as well as domestic market development initiatives including progress on the KLIBOR Transition to MYOR/MYOR-i and efforts to enhance SME FX hedging practices.

1. Membership Updates and Matters Arising

1.1 The FMC expressed its appreciation to outgoing FMC member Tai Mei Ling and Islamic Financial Market Subcommittee (IFMC) co-chair Hanif Ghulam, and approved Shahrul Amry Abdul Malek (Director of Market Development of the Securities Commission) and Suzaizi Mohd Morshid (Group Treasurer of RHB Group) as a new member of the FMC and co-chair of the IFMC respectively.

1.2 On matters arising, the meeting was apprised of BNM’s engagement with bank treasurers in November 2025 which discussed solutions to address corporate deposit competition, during which BNM clarified the flexibility for the Liquidity Coverage Ratio (LCR) to temporarily dip below 100% under specific circumstances such as mitigating unsustainable deposit pricing, subject to a suitable remediation plan.

1.3 The meeting also positively noted efforts to enhance the visibility and acceptance of Malaysian Government bonds, including outreach initiatives to enhance Japanese investors’ understanding of Malaysian Government sukuk as well as the introduction of Malaysia’s Government sukuk yield curve and Government bond auction calendar on Bloomberg.

2. Financial market developments

2.1 Since the last FMC meeting in October, the ringgit’s performance against the US dollar has ranked top among regional currencies, driven by solid domestic economic fundamentals including robust 2025 GDP and January export growth of 5.2% and 19.6% year-on-year respectively. Investor sentiment was also supported by the Government’s continued commitment to fiscal consolidation which reduced the budget deficit to 3.7% of GDP in 2025.

2.2 Accordingly, foreign portfolio flows have improved since October 2025, particularly in the Malaysian stock market where foreign inflows were observed in January 2026 following months of consecutive outflows. Orderly investment flows were facilitated by ample onshore FX market liquidity which recorded a higher average daily trading volume of USD 21.4 billion (YTD as at 9 March) in 2026 compared to USD19.8 billion in 2025.

2.3 Domestic money market conditions remained stable with the average overnight interbank rate trading closely around OPR, while the year-end pressure on KLIBOR was significantly milder compared to previous years with an increase of only 6 bps in Q4 2025 following BNM’s collaboration with the banking industry to address seasonal deposit competition.

2.4 The domestic bond market also held firm with the 10-year MGS yield trading in a tight range around 3.50% despite larger fluctuations in regional markets, while the 10-year UST-MGS spread has remained fairly steady around 50 bps. Conversely, more rapid repricing of interest rate expectations in the interest rate swap market has normalised bond swap spreads back to historically positive, pre-Covid levels.

2.5 With regards to the conflict in the Middle East, members noted that Malaysia was relatively well-positioned in approaching these headwinds given its position as a net energy exporter and reputation for stability during periods of uncertainty. However, members also acknowledged risks to the outlook, including the implications of a prolonged conflict on the global economy and financial markets, as well as contagion risks from the private credit market stress in developed markets on emerging markets such as Malaysia.

3. KLIBOR Transition to MYOR/MYOR-i

3.1 The meeting reviewed and endorsed the progress on the KLIBOR Transition to MYOR/MYOR-i, including the achievements and workplans of the KLIBOR Transition Working Groups:

3.2 Members noted the importance of clear and consistent communication on the spread adjustment for products that have transitioned from KLIBOR to MYOR/MYOR-i and suggested for standardised educational materials to be developed for engagements between banks and clients.

4. Market developments in the services sector, regional treasury activities, and onshore foreign currency (FC) products

4.1 Since 3Q 2025, Malaysia began recording a services trade surplus, largely supported by the recent boom in data centre operations in Malaysia. This is consistent with the Government’s initiatives to reinforce Malaysia’s position as a global services hub, reflects Malaysia’s emerging position as a regional digital infrastructure hub and is expected to be sustained as most data centres have not yet reached full operationalisation capacity. In this regard, banks have observed the corresponding services inflows into the FX market, driven mainly by spot conversions.

4.2 The meeting also noted the development of treasury activities and liquidity centralisation by the Multinational Corporations (MNCs) in line with the increase in foreign direct investment and discussed areas to deepen the onshore financial market and promote inflows into the country.

5. Enhancing FX hedging practices among small and medium enterprises (SMEs)

5.1 The meeting discussed FX hedging practices among SMEs amid the recent ringgit movements, where members noted growing interest in FX hedging as evidenced by a greater allocation of resources to treasury operations.

5.2 To further improve SMEs’ awareness and understanding of FX hedging, members agreed to participate in outreach initiatives in collaboration with BNM, including nationwide engagements and workshops.