Orderly Domestic Market Conditions Provide Sufficient Buffer Amid Global Volatility

KUALA LUMPUR, March 24 (Bernama) -- Orderly domestic market conditions will continue given Malaysia’s deep and liquid financial markets and sound banking system, providing sufficient buffer against global volatility.

Bank Negara Malaysia (BNM), in its Financial Stability Review for the second half of 2024 (2H 2024), said that since the last Financial Stability Review in October 2024, major central banks have continued their respective monetary policy easing cycles as global inflation continued to moderate.

“While loosening global financial conditions initially provided support to global financial markets, market volatility increased towards the end of 2024.

“This heightened volatility was fuelled by the uncertainty over the new US administration’s policies, investors’ expectations of a slowdown in US monetary policy easing and escalating geopolitical tensions in key regions,” it said.

The central bank said these factors are expected to continue contributing to heightened volatility of global financial markets in 2025.

As a small and open economy, BNM said that Malaysia was not insulated from these external developments.

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“Domestic market stress levels, as measured by the Financial Market Stress Index (FMSI), were elevated during the second half of 2024 relative to the first half of the year arising from these external headwinds.

“More recently in 2025, the FMSI increased slightly due to heightened volatility in the foreign exchange (FX) and equity markets. This was driven by market concerns on the possible escalation of global trade tensions and a potentially significant turning point in artificial intelligence (AI) development from China,” it said.

Nevertheless, BNM added that spillovers to domestic financial stability are expected to remain broadly contained.

As for the ringgit, the local note appreciated by 2.7 per cent to 4.4722 against the US dollar, mainly driven by interest rate cuts by the US Federal Reserve, repatriation and conversion of foreign currency income from resident entities, engagements with exporters and importers as well as positive prospects of the Malaysian economy and policy reforms.

BNM said while financial markets could experience episodes of volatility due to global policy uncertainties, Malaysia’s favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the ringgit.

- BERNAMA