The Ringgit’s Strong Comeback and What Caused It?

Image source: New Straits Times

The appreciation of the Malaysian Ringgit has become a hot topic among Malaysians with other currencies becoming more affordable. The Ringgit was seen to rise to a 30-month high of 4.1815 against the US dollar, allowing the Ringgit to end that week as the best-performing currency worldwide. But what’s driving the surge? The rise in Malaysia’s currency came after an unexpected 50 basis point rate decrease by the US Federal Reserve. This unforeseen action gave the world market hope. Furthermore, Fiscal reforms such as the recalculation of diesel subsidies are part of the driving force behind the ringgit's recent surge. Such reforms demonstrate the government's commitment to lowering its deficit. (Zahiid, 2024)

Significant economic initiatives, such the new Industrial Master Plan and the Energy Transition Roadmap, have increased investor confidence. As of August, inflows into Malaysian stocks had reached almost half a billion ringgit. With multinational companies such as Google investing a total of $2 billion in Malaysia, it can be concluded that there is also an increase in investor confidence in Malaysia’s economic prospects and an increase in foreign investments that has helped strengthen the national currency. (AlJazeera, 2024) Analysts attribute the preservation of investor confidence and policy consistency to Prime Minister Datuk Seri Anwar Ibrahim's solid political leadership. (Zahiid, 2024) Though the US Federal Reserve’s policy change has provided the latest rise, the Ringgit’s upward trend also shows market confidence and broader economic resiliency. 

Most would consider the Ringgit’s strength as good news. However, it can also be considered as a double-edged sword for Malaysia. The strength of the currency is seen to relieve financial strain on businesses like Sime Darby Plantation and Malaysia Airports Holdings that have debt in dollars. The downside is that it provides difficulties for exporters, hence lowering the competitiveness of Malaysian goods overseas. (Zahiid, 2024)

BMI, the Fitch group company, indicated that a strong performance in Q3 2024 will cause the Ringgit to strengthen to 4.0 against the US dollar. This is an increase from the earlier estimate of 4.55. Despite risks still associated with China's economic trajectory and the interest rates set by the US Federal Reserve, BMI continues to have a favorable view, pointing to the US and Malaysia's robust growth along with shrinking yield differentials. By the end of 2025, BMI anticipates that the ringgit will have strengthened even more, hitting 3.55. (Francis, 2024)

To conclude, due to solid political leadership, economic plans, and fiscal reforms, the ringgit has performed very well as of late. The ringgit's rebound, according to Bank Negara Malaysia, indicates the real resiliency of Malaysia's economy, despite the country's subpar performance last year. (Mazali, 2024) 

Written by:

Kareena Kaur Boparai,

3rd Year Student at Taylor's University,

Bachelor of Business (Honours) in Finance and Economics.

References: 

Francis, I. (2024) ‘BMI raises USD-MYR forecasts to 4.0 this year, 3.55 in 2025, on narrowing yield differentials, resilient growth’, The Edge Malaysia, 27 September. Available at: BMI raises USD-MYR forecasts to 4.0 this year, 3.55 in 2025, on narrowing yield differentials, resilient growth (theedgemalaysia.com) (Accessed 1st October 2024) 

Mazali, M. (2024) ‘The ringgit's uptrend: Why it may continue to strengthen [BTTV]’, New Straits Times, 25 September. Available at: The ringgit's uptrend: Why it may continue to strengthen [BTTV] (nst.com.my) (Accessed 1st October 2024) 

AlJazeera (2024) ‘Google announces $2bn investment in Malaysia, as gov’t hails 26,500 jobs’, 30 May. Available at: Google announces $2bn investment in Malaysia, as gov’t hails 26,500 jobs | Technology | Al Jazeera

Zahiid, S. (2024) ‘Why the ringgit was world’s top performing currency last week, and what this means for Malaysia’, Malay Mail, 23 September. Available at: Why the ringgit was world’s top performing currency last week, and what this means for Malaysia | Malay Mail (Accessed 1st October 2024)