A Report by CYS Global Remit Counterparty Sales & Alliance Unit
The Malaysian ringgit, which has emerged as Asia’s top-performing currency in 2024, is encountering challenges as we move into 2025. Analysts anticipate a weakening trend for the currency amid escalating trade tensions and the possibility of an interest rate cut from Bank Negara Malaysia (BNM).
Potential Drivers of Ringgit Weakness
Initially stable, the ringgit is projected to decline to 4.6 per US dollar by the end of June 2025. As of March 17, it was trading at 4.449 per US dollar, having partially recovered from previous losses. This outlook reflects growing concerns about Malaysia’s economic resilience in the face of global challenges, particularly U.S. tariffs and a slowdown in trade. David Forrester, a senior strategist at Credit Agricole, noted that “slowing global trade, along with decelerating growth in China and Malaysia due to Trump tariffs, could compel Bank Negara Malaysia to cut rates by late 2025.” Bloomberg swaps data shows a significant rise in the probability of a 25-basis point policy rate reduction, increasing from a two-thirds likelihood at the start of March to full pricing within 12 months.
Trade tensions are a major factor contributing to this outlook. U.S. President Donald Trump’s proposed tariffs on chip imports pose a direct risk to Malaysia, where semiconductors represent a vital export. The U.S. is currently Malaysia's third-largest market for semiconductor exports, amplifying the potential impacts of these tariffs on the nation’s economy. Additionally, the close correlation between the Chinese renminbi and the ringgit may further exacerbate the latter's weakness; a depreciation of the renminbi—prompted by U.S.-China tensions—could exert additional pressure on Malaysia’s currency. Historical data from Bloomberg also indicates a traditional seasonal weakness in the ringgit during the second quarter.
Mitigating Factors and Long-Term Prospects
Despite these challenges, several factors may help to temper the ringgit's decline. Anticipated interest rate cuts by the Federal Reserve, fueled by concerns of a U.S. recession, could provide some respite. Saktiandi Supaat, head of FX research at Maybank, suggests that “fading U.S. exceptionalism” might drive the ringgit to 4.35 per dollar by the end of 2025.
On the domestic front, Malaysia's central bank has maintained a cautious yet optimistic outlook. At its March 2025 meeting, BNM upheld the policy rate, citing a resilient economy with positive growth prospects. The central bank underscored that structural reforms and ongoing initiatives to enhance capital inflows would support the currency in the long run. Nevertheless, economic indicators indicate potential vulnerabilities. Audrey Ong, a strategist at Barclays Bank, observed that recent GDP growth moderation might dampen policymakers' confidence in the economy’s strength. While economists surveyed in late 2024 expected BNM to maintain steady rates throughout the year, evolving global dynamics could require adjustments.
Conclusion
The trajectory of the Malaysian ringgit in 2025 will be influenced by a complex interplay of global and domestic factors. Trade tensions, especially regarding U.S. tariffs on China and Malaysia, present significant concerns. Additionally, the possibility of an interest rate cut by BNM highlights the central bank's preparedness to address economic headwinds. While external risks remain the primary drivers of the ringgit’s performance, Malaysia’s structural reforms and favourable economic fundamentals provide a glimmer of hope for the currency's long-term resilience.
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