MALAYSIA: Despite being Asia’s best-performing currency in 2024, the Malaysian ringgit is now facing renewed pressure due to global trade uncertainties. This is further exacerbated by the growing likelihood of an interest rate cut by Bank Negara Malaysia (BNM).
Analysts warn that slowing growth, heightened US-China trade tensions, and Malaysia’s reliance on semiconductor exports could weaken the currency in the coming months. However, potential interest rate cuts by the US Federal Reserve may offer some relief.
The Straits Times (ST) reported quoting Bloomberg that the ringgit closed at 4.449 per US dollar on March 17, 2025, recovering some of its losses from the previous week. However, currency strategists expect further depreciation, with some predicting that the ringgit could weaken to 4.6 per US dollar by the end of June.
Trade tensions and policy decisions weigh on the ringgit
The biggest risk to the ringgit stems from global trade uncertainties. US President Donald Trump’s proposed tariffs on chip imports could hurt Malaysia’s semiconductor industry, which supplies a significant portion of exports to the United States. Since the US is Malaysia’s third-largest semiconductor export market, any disruption could negatively impact economic growth.
Adding to these concerns, China, Malaysia’s largest trading partner, faces mounting economic challenges. A weaker Chinese renminbi could put further downward pressure on the ringgit due to their historical correlation. “Slowing global trade as well as Chinese and Malaysian growth due to Trump tariffs could force Bank Negara Malaysia to cut rates late in 2025,” senior strategist David Forrester of Credit Agricole was quoted as saying by ST,
Market expectations for a rate cut have surged, with swaps data compiled by Bloomberg showing traders fully pricing in a 25-basis-point reduction in BNM’s policy rate within the next 12 months. This marks a significant shift from the beginning of March when only a two-thirds probability was expected.
Federal Reserve rate cuts could provide some support
While trade tensions present downside risks, some analysts believe that expectations of Federal Reserve interest rate cuts could help stabilise the ringgit. Growing concerns over a potential US recession have fuelled speculation that the Fed may implement further rate reductions, which could weaken the US dollar and support emerging market currencies like the ringgit.
Saktiandi Supaat, head of FX research at Maybank, was quoted as saying that the fading US exceptionalism may also support a ringgit move towards 4.35 per dollar by the end of 2025. This suggests that while short-term volatility is likely, the ringgit could see some recovery in the longer term if global conditions shift in Malaysia’s favour.
For now, BNM has kept its policy rate unchanged, citing a resilient domestic economy. The central bank maintains that favourable economic prospects, domestic structural reforms, and ongoing initiatives to attract investment will continue to support the currency.
However, some analysts remain sceptical. “The recent moderation in GDP growth suggests that policymakers are unlikely to be so confident about the strength of the Malaysian economy that they would look through any US tariffs,” said Singapore Barclays Bank strategist Audrey Ong. This suggests that if economic conditions worsen, BNM may be forced to reconsider its stance and adjust monetary policy accordingly.
Concerns over forecasts and market volatility
Netizens are expressing mixed reactions to the ringgit’s outlook, with some sceptical about expert predictions. One Facebook user remarked, “Last year, analysis experts said this year RM trading range would be 3.98 to 4.39. See what happened? Can’t trust forecasters anymore.” This reflects a broader frustration with currency projections that have not always materialised as expected.
Others are closely monitoring BNM’s next move, particularly its decision on interest rates in May. “All eyes on whether they will reduce or keep their interest rate the same this May…” noted another user, highlighting the anticipation surrounding the central bank’s upcoming policy meeting.
Another commenter warned that further volatility is expected, stating, “And the story begins. End of March, first week of April will be turbulent.” This aligns with market expectations that global economic shifts and trade developments could lead to short-term currency fluctuations.
A volatile road ahead
The ringgit’s performance in the coming months will largely depend on external factors, including global trade policies, China’s economic stability, and the US Federal Reserve’s decisions on interest rates. While risks remain high, potential support from US rate cuts and domestic economic resilience could provide some cushioning against excessive depreciation.
For now, investors, policymakers, and businesses will be watching closely as Malaysia navigates an increasingly complex global economic landscape. With uncertainties looming, businesses that rely on imports and exports must prepare for currency fluctuations, while policymakers will need to carefully balance monetary policy to support economic growth without triggering capital outflows.
As global economic conditions shift, Malaysia’s ability to adapt to these challenges will be key in determining the ringgit’s long-term trajectory.
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Featured image by Vecteezy (for illustration purposes only)