Good economy, political stability behind ringgit uptrend, say economists

THE ringgit is expected to trade higher against the US dollar in weeks to come due to the US Federal Reserve’s move to start its interest rate cutting cycle backed with the low inflation rate, economists said.

On a Friday-to-Friday basis, the ringgit strengthened to 4.3185/3225 against the US dollar from 4.3720/3775 a week ago. The local currency also traded higher against other major currencies.

It gained against the euro, closing at 4.7862/7906 from 4.8604/8665, appreciated against the British pound to 5.6939/6992 versus 5.7391/7463 and gained vis-a-vis the Japanese yen to 2.9754/9784 from 2.9914/9956 a week earlier. The ringgit also traded higher against Asean currencies.

Ahmed Razman Abdul Latiff of Putra Business School said Malaysia has to increase its exports so that the country could enjoy larger returns.

He added apart from the US Federal Reserve’s move to cut its interest rate, Malaysia’s political stability has also attracted more foreign investors, which led to the strengthening of the ringgit.

“The main factor is the US Federal Reserve move to cut its interest rate. The internal factor is our political stability. Our economic data shows improvement in both imports and exports. Our inflation is at a low rate of 2%.

“I see the ringgit staying this way until the end of the year. We can always improve our exports. Empower our domestic economy so that we can produce more,” said the academic.

The director of the Economic Studies Programme at the Jeffrey Cheah Institute, Professor Yeah Kim Leng, mirrored Razman’s view, saying that the country’s good economic performance drove the strengthening of the ringgit.

“Our trade performance was good, the rise in FDI and our second quarter GDP exceeded our expectations. These are what contribute to our strong ringgit.

"Of course, the Federal Reserve reversing the higher interest rate played a role but if our own economy was not good, we won’t be seeing these numbers,” Yeah said.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the ringgit is expected to trade higher against the US dollar next week on a sustained demand for the local currency.

He said the ringgit is likely to breach its immediate support level of RM4.3030 in the near term.

“If one were to look at the US dollar/ringgit since the currency peg was removed on July 21, 2005, the average level stood at RM3.7875. Hence, there is a high tendency for the ringgit to appreciate further as it might revert to its long-term mean,” he said.

Last month, Prime Minister Anwar Ibrahim said the ringgit is at its strongest level in 14 years due to the unity government’s policies and collective efforts to develop the country.

He said that although the opposition often claimed the currency was declining, it has, in fact, shown positive recovery under the current administration.

“The ringgit is also the strongest in Asia. Why? It’s not because of me or Anwar. It’s due to government policies and our consensus.

“Investments are flowing in, and if you look at decades of records, those who have been in the federal government know that there has never been such a response (from investors).”

Anwar said his efforts while representing Malaysia internationally were focused on promoting states, including Sabah, as major investment hubs, especially in tourism.

“In every place I visit, whether China, Japan, or Germany, I always point out that there are investment opportunities in oil and gas, tourism, new technology, and energy transition, including in Sabah. I represent both Malaysia and Sabah,” the prime minister had said. – September 2, 2024.