Ringgit glitters

THE ringgit’s recent rally appears to be grounded in improving fundamentals and policy credibility, setting Malaysia apart from its Asean peers.

While the rupiah and Philippine peso have struggled against the US dollar, the ringgit has risen from 4.23 late last month to 4.13, nearing its four-year high of 4.12 in September last year. (see chart)

Among the Asean-6 – the region’s six largest economies – only the ringgit, baht and Singapore dollar have gained against the greenback this year, while the dong, rupiah and peso fell.

Still, against Asean-6 peers, the ringgit outperformed. (see chart)

The currency has also hit multi-year highs against neighbours and major currencies – all-time highs versus the dong and rupiah, levels unseen against the peso since 2011, near-decade highs versus the yuan at 1.72, and multi-decade highs versus the yen at 37.49.

What’s driving the ringgit?

Economists say the momentum is no fluke, and that the ringgit’s strength reflects renewed faith in Malaysia’s policy discipline and economic trajectory.

SPI Asset Management managing partner Stephen Innes describes the ringgit’s rally as “fundamentally credible,” supported by both global and domestic tailwinds.

He notes that a weaker US dollar – amid expectations of earlier Federal Reserve (Fed) rate cuts, softer US labour data and improved sentiment after the US shutdown resolution – has lifted regional currencies, while Malaysia’s onshore dynamics have added further support.

“(Malaysian) exporters are sitting on over US$62bil in foreign exchange deposits, giving them room to convert more aggressively,” says Innes.

“Onshore liquidity has also deepened materially, with daily volumes now near US$20bil, well above pre-2024 norms.”

Even so, Innes cautions that sustainability of the ringgit’s strength hinges on the global rates cycle.

“Any US inflation surprise or a hawkish reset from the Fed would quickly knock the wind out of Asian foreign exchange, the ringgit included,” he says.

“If China or regional demand stumbles, the ringgit could give back ground.”

Hong Leong Bank Bhd global markets managing director Hor Kwok Wai sees the ringgit’s strength as a “direct reflection of Malaysia’s significantly improved economic standing.”

Hor says external confidence is soaring, driven primarily by the recent reciprocal trade agreement signed with the United States, which has de-escalated bilateral trade tensions.

Supporting this, Bank Negara Malaysia’s (BNM) international reserves stood at US$123.4bil as at Oct 15, 2025 – the highest in over a decade – enough to cover 4.8 months of imports and 0.9 times the total short-term external debt.

“This positive sentiment, coupled with the conclusion of the Asean Summit hosted in Malaysia, is attracting robust foreign direct investment and portfolio inflows, particularly into Malaysian bond and equity markets,” he adds.

“This stability is expected to contribute to a slower pace of foreign reserves accumulation by the central bank.”

Domestically, Hor says confidence is further boosted by Prime Minister Datuk Seri Anwar Ibrahim’s recent comment, suggesting that the country’s 2025 gross domestic product (GDP) growth could exceed the official forecast range of 4% to 4.8%.

Malaysia’s economy shows this momentum in numbers.

Third-quarter GDP based on advance estimates is projected to expand 5.2% year-on-year, surpassing expectations of 4.2%, while trade for the first nine months of 2025 grew 4.4% to RM2.235 trillion.

Exports rose 4.8% to RM1.170 trillion and imports climbed 4% to RM1.064 trillion, resulting in a trade surplus of RM105.65bil.

Trade with China alone, however, recorded a deficit of RM113.02bil, with exports at RM136.34bil and imports at RM249.36bil over the same period – a gap that could narrow if the ringgit continues to strengthen.

Hor says the gains in ringgit serve as “market validation” of Malaysia’s ongoing commitment to fiscal sustainability, anchored by Budget 2026, which targets a 3.5% fiscal deficit.

Similarly, Maybank Investment Bank Research (Maybank IB) says optimism over the ringgit is well grounded in fundamentals.

It adds that ongoing legal recoveries linked to 1Malaysia Development Bhd have further strengthened the country’s fiscal position and credibility.

Ringgit vs Visit Malaysia 2026

Yet, as Malaysia gears up for the Visit Malaysia 2026 campaign – targeting 35 million international visitors – the ringgit’s rise poses a mixed outlook for the tourism sector.

Tourist arrivals rose 14.5% to 28.24 million in the first eight months of 2025, compared with 24.67 million a year earlier.

In 2024, the country welcomed about 25 million visitors, led by arrivals from Singapore (9.1 million), Indonesia (3.65 million), Thailand (1.64 million) and Brunei (1.14 million).

Economists say a stronger currency may trim Malaysia’s “value for money” advantage among price-sensitive travellers from nearby markets, but its overall tourism appeal remains resilient.

“Tourism from China and Asean remains extremely price-elastic, and a firmer ringgit slightly trims the ‘value for money’ edge,” says Innes.

Still, Innes says Malaysia’s appeal doesn’t hinge on foreign exchange alone, citing strong infrastructure, competitive accommodation, and a well-developed travel ecosystem.

“A stronger ringgit may moderate the upside, but it won’t derail the campaign.”

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid says that the ringgit’s appreciation is unlikely to dent tourist arrivals.

“Given that the ringgit has room to appreciate, this could also mean that the ringgit is still undervalued.”

What’s ahead for the ringgit?

Economists say the ringgit’s recent momentum could carry it higher.

Afzanizam sees further upside, pointing to the long-term average USD/MYR since BNM unpegged the ringgit in July 2005 is around RM3.82.

He adds that any reversal would likely depend on the Fed rate decisions or changes in US tariffs, though such scenarios are considered “highly unlikely.”

With the stronger ringgit expected to boost economic sentiment, Afzanizam says the firm has revised its forecast to RM4.10 to RM4.15 for 2025 and RM4.05 to RM4.10 for 2026.

SPI Asset Management’s Stephen Innes expects the ringgit to stay firm into year-end, consolidating at 4.05 to 4.10 against the greenback if US data remains soft and the Fed continues on a rate-cut path.

Looking into 2026, Innes sees a more balanced outlook for the ringgit.

“My bias: firmer into year-end, then more tactical as we move through 2026.”

While Malaysia’s fundamentals remain strong, Innes says external factors – including US yields and the broader dollar influenced by the global artificial intelligence-driven capex cycle – will largely “dominate” the ringgit’s path.

“If the United States avoids a hard landing and regional trade stabilises, the ringgit can hold its stronger footing.

“If global risk appetite wobbles or US inflation re-accelerates, the ringgit could retrace some gains.”

Hong Leong’s Hor remains bullish, citing strong fundamentals and expected GDP growth at the upper end of official forecasts.

He sees the ringgit steadily appreciating, aiming for 4.05 by mid-2026.

“We firmly believe the ringgit has sufficient fundamental strength to continue its appreciation path,” Hor says.

Maybank IB expects the economy to grow 4.2% in 2025 and 4.1% in 2026, with the ringgit likely reaching 4.10 against the US dollar by year-end.

What does it mean for Malaysians?

For Malaysians, a stronger ringgit is a double-edged sword.

Afzanizam says the firmer ringgit “injects some feel-good factor,” as it helps ease import-related inflation and makes foreign goods, travel and education cheaper, giving households and businesses some relief.

“People can travel abroad with improved purchasing power. Businesses too can import raw materials at a lower cost.”

But, Innes notes that the impact is “real but incremental.”

“A firmer ringgit helps ease imported inflation – everything from fuel inputs to electronics to overseas education becomes a bit cheaper – and overseas travel is more affordable,” he says.

“But households feel depreciation far more dramatically than appreciation.”

Innes adds that for those earning in foreign currency, a stronger ringgit reduces take-home value, and if export sectors soften because the currency stays strong, that can affect wage growth and hiring.

As Malaysia heads into 2026, the challenge will be to maintain this currency strength without undermining its competitiveness – whether in exports or tourism.

For now, the ringgit’s rise reflects renewed confidence.

As Innes puts it: “The current strength is earned, but not untouchable – durable with conditional risks.”