Economists said the local currency remains sensitive to both US policy and trade shifts.
PETALING JAYA: The ringgit may face volatility in the short term, but economists suggest it could hold steady within its fair value range of RM4.20 to RM4.40 against the US dollar, barring any major external shocks.
As for the longer term, they are cautiously optimistic, noting that Malaysia’s stable fundamentals including healthy trade inflows and moderate inflation may offer resilience to the ringgit despite global uncertainties.
After climbing to RM4.12 against the greenback in September, the ringgit has slipped, now hovering around RM4.40.
The Federal Reserve’s (Fed) recent 25-basis-point rate cut, a milder approach than earlier moves, to a range of 4.5% to 4.75%, has not spurred much movement in the ringgit.
But economists said the local currency remains sensitive to both US policy and trade shifts, particularly as markets react to US president Donald Trump’s impending return to office in January 2025.
To note, the United States is Malaysia’s third-biggest export market with an 11% share.
Economist Yeah Kim Leng told StarBiz in the short term, the ringgit might face volatility due to uncertainties in the Western markets, particularly the United States.
“Since Trump’s victory, global uncertainties have risen due to his unorthodox policies,” Yeah said, pointing to campaign pledges such as tax cuts for the wealthy, an anti-immigration stance and trade protectionism, including possible tariffs of 60% on Chinese imports.
He added that this could lead to a higher inflation scenario in the United States, potentially limiting the Fed’s ability to cut interest rates aggressively.
Yeah, who is also the president of the Malaysian Economic Association, said these factors could affect the dollar’s strength and thereby impact the ringgit.
Meanwhile, economist Geoffrey Williams said a fair value for the ringgit is around RM4.20 to RM4.40 against the US dollar and the recent levels of RM4.80 and RM4.12 were “transitory and pushed by special factors and market news”.
“Given the current strong domestic fundamentals and a likely calming of geopolitical tensions, it is better to tone down intervention and insistence on active exchange rate policy,” noted Williams, who is also the founder and director of Williams Business Consultancy Sdn Bhd.
He said the approach by Bank Negara to encourage repatriation of funds from Malaysian firms overseas helped strengthen the ringgit and should be maintained but on a much more conservative basis.
“Ensuring liquidity and confidence in the ringgit market is more important now rather than active policy,” he added.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid said external factors will continue to drive the ringgit, with a primary focus on Trump’s policies from 2025 to 2028.
“Key questions would be the impact of a possible tariff hike, tax cuts and mass deportation of illegal immigrants on inflation. Ultimately, will this change the Fed’s course on rate cuts?” he said in a reply to StarBiz.
On that note, Mohd Afzanizam said traders are likely to adopt a wait-and-see attitude until the president is inaugurated in January 2025.
As for the possibility of the ringgit revisiting the RM4.80 levels, he said it is “far-fetched,” given that the Fed is likely to continue with rate cuts next year and operates as an independent institution from a legal standpoint.
While Trump’s policies may provide short-term support for the US dollar, Yeah said in the longer run it is “unsustainable”, as the potential for debt levels and fiscal strain could ultimately weaken it.
“With inflation potentially rising due to these policies, the Fed might cut rates less aggressively than anticipated, thereby providing additional support to the dollar,” said Yeah.
“In the longer run, high fiscal deficits could lead to a sharp decline. This might even accelerate the pace of de-dollarisation globally, giving other currencies room to appreciate against the US dollar,” he added.
On the ringgit, Yeah emphasised the need for Malaysia to preserve its foreign reserve to withstand future shocks.
He said the ringgit’s fundamentals –backed by stable growth, low inflation and strong trade inflows – remain robust.
Looking ahead, Yeah said greater policy clarity from the United States will be essential to stabilise currency and financial markets.
Williams echoed this outlook, noting that Malaysia’s domestic economy is performing well, with Bank Negara’s decision to hold the overnight policy rate at 3% as a prudent move.
“The Trump victory will be good for global trade and investment and Malaysia should benefit from that,” he said.
Mohd Afzanizam, on the other hand, said the uncertainty will hinge on the degree to which Trump’s policies materialise.
“We’ve seen previous negotiations between Trump and China and while Trump may pursue some of his more assertive trade policies, he is unlikely to compromise US economic stability given his business acumen,” Mohd Afzanizam said.
“Hence, we should not jump the gun as we need to see the facts and the actual implementation of policies,” he said.
