28 July 2025

SUMMARY

➤ Prime Minister Anwar Ibrahim unveiled a new cost‑of‑living relief package, which includes a one‑off RM100 cash aid for all Malaysians aged 18 and above, lower RON95 petrol price to RM1.99 per litre under a targeted fuel subsidy scheme, toll hike freeze and extra public holiday.

➤ The special cost-of-living relief package is likely to have both short-term stimulative effects on economic growth and moderate upward pressure on inflation, though the overall impact is expected to be limited. Thereafter, there will be no revision to our in-house 2025 GDP growth projection of 4.0 – 4.5%.

➤ We think the budget deficit of 3.8% of GDP will remain intact mainly driven by the potential revenue uplift from SST expansion starting from July and higher than expected savings from diesel subsidy targeting. As such, we see neutral impact on net issuance of government bonds in 2025’s pipeline.

➤ We maintain our investment strategy of portfolio duration within 5 – 7 years with overweight exposure in high grade corporate bonds to minimize credit downgrade risk in slowing growth environment. We also look to enhance the returns of the portfolio through active trading in the secondary market.

• On 23 Jul’25, Prime Minister Anwar Ibrahim unveiled a new cost‑of‑living relief package, which includes a one‑off RM100 cash aid for all Malaysians aged 18 and above, lower RON95 petrol price to RM1.99 per litre under a targeted fuel subsidy scheme, toll hike freeze and extra public holiday. The stated objective was to ease inflationary pressures and to deliver immediate relief to low‑ and middle‑income households while reducing fiscal leakages from untargeted subsidy schemes.
• One-off RM100 SARA cash aid will be distributed starting 31 Aug’25 to all Malaysians aged 18 and above. The aid, redeemable via MyKad at over 4,100 retail outlets, is intended to support purchases of essential items. This initiative estimated to cost RM 2 billion, is aimed at alleviating living costs and bolstering consumer confidence amid ongoing external headwinds driven by trade uncertainty.
• Targeted subsidy for RON95 petrol is expected to be implemented in September 2025, with eligible Malaysian drivers paying a fixed rate of RM1.99 per litre once the scheme takes effect, while foreign nationals and the top 15% of earners or those with a possible income ceiling between RM13,000-RM15,000 per month will instead pay the unsubsidised market rate. The targeted subsidy scheme is expected to reduce government fuel subsidy spending by RM4 billion from the previous annual cost of RM20 billion, assuming it covers 85% of RON95 consumers and the market price remains at RM2.50 per litre.
• Allocation for the Jualan Rahmah Madani programme will increase to RM600 million from RM300 million, reinforcing the government’s commitment to easing the cost of living. The increased funding will boost the frequency and reach of subsidised sales across all 600 constituencies, while offering a wider range of essential goods at affordable prices. As the initiative is rolled out in phases, further announcements are expected, detailing the specific mechanisms and timelines for implementation.
• The declaration of a one-day public holiday on September 15 could provide a modest but timely boost to domestic consumption in Q3, a period when household spending is typically subdued during the quarter due to the absence of major festive holidays. Some consumption-driven sectors such as retail, food and beverage and tourism may gain advantage from higher consumer spending during the public holiday, though minimal.
• The postponement of toll rate hikes for 10 major highways will ease the financial burden on nearly 941,000 daily commuters, with the government compensating highway concessionaires over RM500 million to defer the increases. Complementing the one-day extra holiday, the toll hike freeze may also encourage short domestic travel during the long weekend, further reinforcing tourism-related spending and supporting local businesses across the country.

BOND MARKET OUTLOOK AND OPUS VIEW

• The special cost-of-living relief package is likely to have both short-term stimulative effects on economic growth and moderate upward pressure on inflation, though the overall impact is expected to be limited (potentially adding 0.1%-0.3% to the real GDP growth). Thereafter, there will be no revision to our in-house 2025 GDP growth projection of 4.0-4.5%.
• We think the budget deficit of 3.8% of GDP will remain intact mainly driven by the potential revenue uplift from SST expansion starting from July (aiming to raise an extra RM5 billion) and higher than expected savings from diesel subsidy targeting (+RM3.5 billion vs initial target). As such, we see neutral impact on net issuance of government bonds in 2025’s pipeline (to stay at MYR80 billion).
• The more sizable expenditure commitments in 2026 (emolument hikes and cash transfers) can be funded by additional revenue of RM 10 – 12 billion from annualized SST collection, carbon tax and e-invoicing. We view that the fiscal deficit to narrow further in 2026 to 3.5% in tandem with the Medium Term Fiscal Framework 2025 – 2027 despite federal government debt remains high at around 64% of GDP over 2026 – 2029.
• With no major change to our view, we remain focus on investment strategy of portfolio duration within 5 – 7 years with overweight exposure in high quality corporate bond to mitigate downgrade risk. We also look to trade opportunistically in the secondary market to enhance the portfolio overall returns.