Kuala lumpur: The government's commitment to fiscal policy reforms over the past few years is bearing fruit, affording it room to adopt a wait-and-see approach amid the conflict in West Asia, according to OCBC Research Group.

According to BERNAMA News Agency, OCBC Research Group's senior ASEAN economist, Lavanya Venkateswaran, highlighted that Malaysia is handling external volatility from a position of strength, particularly as rising global oil prices pose risks to inflation, fiscal balance, and logistics costs. She noted, "The economy is entering this latest bout of global volatility from a position of strength. We expect the 2026 gross domestic product growth forecast range to be announced by the government to be 4.5 to 5.5 percent, while our forecast remains at 4.4 percent."

Venkateswaran added that there is some fiscal room to maneuver, with the government maintaining RON95 subsidies under the Budi MADANI RON95 (BUDI95) mechanism. Consequently, Bank Negara Malaysia (BNM) is expected to hold interest rates through 2026. However, she emphasized the need to continue monitoring the risks to this forecast.

The government has indicated that the allocation can be RM2 billion per month to maintain RON95 prices at RM1.99 per litre through the BUDI95 initiative, leading to expenditures of RM24 billion. Venkateswaran stated, "This is similar to our estimates of the RON95 subsidy bill if global oil prices average US$100 per barrel for 2026. If oil prices hover around the year-to-date average of US$72.7 per barrel, we estimate the subsidy bill to be about RM12.5 billion."