Ringgit rallies on steady policy and brighter growth
The Malaysian ringgit strengthened to its highest level in 13 months on Nov 7, touching around 4.1720 per US dollar, after Bank Negara Malaysia left its overnight policy rate unchanged and investors dialed back expectations for domestic rate cuts. The move capped a year to date gain of more than 7 percent in 2025, placing the ringgit at the top of Asia’s currency league for a second straight year, with appreciation that extends beyond the dollar to several regional currencies.
Several forces have converged to power this advance. A softer United States dollar, narrowing interest rate differentials, renewed optimism on Malaysia’s growth outlook, and a perception of fiscal discipline and political stability have supported demand for ringgit assets. The central bank’s steady policy stance, combined with foreign bond inflows in October after a September outflow, broadened support. The backdrop across the region also helped. Singapore’s currency softened after two rounds of policy easing this year, while Indonesia’s rupiah came under pressure from fiscal deficit worries, foreign bond selling, and domestic rate cuts.
Gains against neighbors have been striking. The ringgit climbed to its strongest level since September 2022 versus the Singapore dollar and set a fresh high against the Indonesian rupiah. Liquidity in Malaysia’s onshore market has improved this year, with daily turnover around 20 billion US dollars, a jump of more than 40 percent compared with the 2020 to 2024 average. That depth has made it easier for exporters and investors to transact, which can reduce intraday volatility and help anchor confidence.
What is powering the ringgit
The currency’s climb reflects a mix of global and domestic catalysts. The United States dollar has lost momentum as investors anticipate a shift in the Federal Reserve’s policy later this year. At the same time, Malaysia’s macro picture looks steadier, with growth supported by domestic demand, contained inflation, and a current account that remains in surplus. Together these trends have pulled capital back into ringgit assets.
Narrower rate gap with the United States
The interest rate differential often drives currency flows. When the gap between US rates and Malaysian rates narrows, the carry advantage of holding US dollar assets fades and funds can rotate into higher yielding or more stable alternatives. Bank Negara Malaysia kept the overnight policy rate (OPR) at 2.75 percent at its latest meeting. Markets are increasingly confident the Federal Reserve will begin to cut rates in December, after softer labor data and a slide in the US dollar index below 100. Rate expectations matter because they shift relative yields and the outlook for global risk appetite.
Malaysia has not needed to chase the Fed higher to defend the currency. Inflation is modest, and the real policy rate is positive. This gives the central bank room to prioritize stability without tightening. If US rates decline from current levels while Malaysia holds steady, the differential would compress further. That scenario typically supports the ringgit by improving the relative return for ringgit deposits and bonds.
Stronger reserves and a more liquid market
A deeper and more resilient foreign exchange market has underpinned the rally. Net international reserves rose to about 94.7 billion US dollars at the end of April, the highest in roughly three years. Higher reserves, together with the unwinding of the central bank’s net short forward position, improve Malaysia’s capacity to smooth volatility during bouts of global stress. Investors tend to reward markets that can absorb large flows without sharp dislocations.
Liquidity matters just as much. Onshore daily currency turnover is around 20 billion US dollars in 2025, according to central bank figures. That scale is more than 40 percent above recent years, reflecting healthy participation by exporters, local institutions, and global funds. A deeper pool of liquidity reduces trading costs, narrows bid ask spreads, and encourages more hedging by corporates. Over time, these microstructure improvements can lift a currency’s resilience across cycles.
Exporter conversions and earnings repatriation
Policy nudges have also played a role. Authorities have encouraged government linked companies and investment firms to convert a larger share of foreign earnings into ringgit for domestic investment and dividends. When large corporates sell dollars to meet local funding needs, the flow increases demand for ringgit and helps keep offshore speculation in check. Exporters have also taken advantage of firmer prices to convert proceeds more actively.
These flows interact with an improving growth picture. Malaysia’s economy expanded by 4.4 percent in the first quarter of 2025, driven by domestic demand and supported by stronger electrical and electronics shipments and a continued tourism recovery. Headline inflation eased to 1.5 percent, while core inflation edged up to 1.9 percent, a mix that supports purchasing power without forcing aggressive policy moves. The central bank’s first quarter review is available here.
Beating regional peers
The ringgit’s outperformance is visible across Asia. Against the Singapore dollar, the ringgit has regained ground to levels last seen in late 2022. Singapore’s monetary authority eased policy in January and April, which slowed the trade weighted appreciation of its currency. That shift, together with Malaysia’s firmer growth pulse, narrowed the gap. Against the Indonesian rupiah, the ringgit marked a record, aided by concerns over Indonesia’s fiscal deficit, foreign bond outflows, and domestic rate cuts.
The contrast with North East Asian currencies is also instructive. Currencies tied closely to global electronics cycles and exposed to shifts in risk appetite often weaken when global growth wobbles or when the US dollar rises. Malaysia’s more balanced export base and credible inflation framework have kept the currency steadier across phases of the dollar cycle. Recent foreign inflows into Malaysian bonds, about 1 billion US dollars in October after a 1.7 billion US dollar outflow in September, underscore that shift in sentiment.
Global crosswinds, tariffs and trade
The external backdrop has been fluid. A temporary pause in tariff escalations earlier in the year supported trade volumes across Southeast Asia and lifted regional growth in the second quarter. Later, renewed tariff threats and selective measures reintroduced uncertainty for exporters. Malaysia has worked to limit the damage by securing more favorable terms in some cases and by positioning its supply chains to adapt. Reports indicated a reduction in certain US tariffs on Malaysian exports to 19 percent from an initially higher level, easing some pressure on manufacturers.
Malaysia’s trade fortunes are tied to China and the United States, its two largest partners. A tariff truce between the two superpowers, even if partial, supports sentiment and orders for Malaysian intermediate goods. If the US dollar weakens as rate cuts begin, and if China sustains a gradual recovery with a steadier renminbi, the ringgit tends to benefit through stronger demand and positive currency spillovers.
Who benefits and who hurts from a stronger currency
Households and importers are early winners. A firmer ringgit lowers the local price of imported food, fuel, and intermediate goods, which helps keep inflation pressures contained. Companies that import capital equipment or raw materials see lower costs, which can protect margins. The government also faces reduced financing pressure on foreign currency obligations as the exchange rate strengthens.
Exporters face a more mixed picture. Firms paid in dollars or Singapore dollars may see thinner margins when they convert back to ringgit. Many hedge a portion of their revenues to reduce that risk, and a stronger currency also lowers the cost of imported inputs and improves balance sheets. Equity market performance reflects that blend. Malaysia’s benchmark index struggled through much of the year, yet a steadier ringgit helped the market hold above key thresholds and narrow losses into the third quarter as foreign outflows slowed.
What policy makers are signaling
Bank Negara Malaysia kept its policy rate steady and indicated comfort with a currency supported by fundamentals rather than short term interventions. In its first quarter review, the central bank also highlighted modest inflation, resilient consumption, and steady investment. On the currency, the message emphasized market functioning and stability. The bank’s official stance reads clearly:
Bank Negara Malaysia remains committed to ensuring orderly domestic foreign exchange market conditions.
Markets have taken the hint. Ringgit swaps currently price a steady policy path over the next year, which reduces uncertainty around funding costs. The central bank has also strengthened the market’s shock absorbers by building reserves and improving the mechanics of the onshore market. Those steps support orderly conditions without signaling a preferred level for the currency.
Risks to monitor
Currency rallies rarely move in a straight line. Periods of US dollar strength can still trigger pullbacks in the ringgit, as seen midyear when the dollar index climbed back near 100 on changing trade headlines and solid US data. Global investors often reprice exposure across emerging markets during those episodes, which can lead to short bouts of ringgit underperformance even if the domestic picture is steady.
The path of US interest rates remains the key external driver. If labor market weakness is deeper than expected, the Fed could cut more quickly, which would favor the ringgit. A slower or smaller cycle would preserve a wide rate gap and support the dollar. US fiscal disputes and bond market volatility add another layer of uncertainty. Closer to home, the trajectory of China’s economy and the renminbi matters given Malaysia’s close trade links. A firmer renminbi often anchors regional currencies, while a slide can weigh on the ringgit.
Trade policy is another swing factor. Earlier pauses and truce extensions lifted sentiment, yet any broad tariff shock could reduce export orders and dent investment plans. Malaysia’s efforts to diversify supply chains, deepen the domestic capital market, and continue fiscal consolidation aim to buffer those risks.
Outlook and scenarios
Forecasts cluster around a gradual strengthening path. Several research houses expect the ringgit to average around 4.10 per US dollar in 2025, with potential to approach the 4.00 handle if global conditions remain calm and US rates ease. Some analysts look for an end year level near 3.90 if growth stays on track, inflation remains contained, and policy execution stays credible. Others take a more conservative view for 2026, projecting the ringgit around 4.12 by year end as trade headwinds fade only slowly.
Analysts also stress the timing of US cuts and local policy patience. Ahmad Nazmi Idrus, an economist at CGS International Securities, said the ringgit’s fair value should reassert itself once the Fed finishes its cuts. “Perhaps after those cuts are done, the ringgit could return to its fair value.” A realistic base case is a two way market with a firmer trend. Pullbacks are likely during periods of global risk aversion. Strength should reappear when yields fall in the United States, when China steadies, and when domestic reforms stay on schedule.
Key Points
- Ringgit hit a 13 month high near 4.1720 per US dollar on Nov 7, up more than 7 percent year to date.
- Bank Negara Malaysia kept the policy rate at 2.75 percent, while markets price US rate cuts, narrowing the rate gap.
- FX reserves rose to about 94.7 billion US dollars at end April, adding a buffer against volatility.
- Onshore FX turnover is around 20 billion US dollars per day in 2025, more than 40 percent above the 2020 to 2024 average.
- The ringgit strengthened versus the Singapore dollar and set a record high against the Indonesian rupiah.
- Foreign investors returned to Malaysian bonds in October after a September outflow, supporting the currency.
- Domestic growth held at 4.4 percent in the first quarter with inflation easing to 1.5 percent headline and 1.9 percent core.
- Temporary tariff pauses aided regional growth, while renewed measures remain a risk for exporters.
- Bank Negara Malaysia reiterated its commitment to orderly FX market conditions rather than a fixed level for the currency.
- Baseline outlook points to gradual appreciation toward the 4.00 to 4.15 range if US rates ease and Malaysia’s policies remain steady.
