BUSINESS – The Malaysian ringgit is experiencing depreciation pressures due to anticipated domestic interest rate reductions and escalating global trade disputes. Analysts suggest that Bank Negara Malaysia (BNM) may implement a rate cut by late 2025, influenced by decelerating global trade and reduced economic growth in both China and Malaysia, exacerbated by U.S. President Donald Trump’s proposed tariffs on major trading partners, including China.
Market sentiment reflects these expectations, with swaps data indicating a full pricing in of a 25-basis-point reduction in BNM’s policy rate within the next 12 months—a notable shift from early March when the probability was estimated at two-thirds. The ringgit, which has remained relatively stable this year, is now projected to weaken, potentially reaching 4.6 per U.S. dollar by the end of June, according to analysts at Crédit Agricole CIB.
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The semiconductor sector, a significant component of Malaysia’s exports, is particularly vulnerable to the proposed U.S. tariffs, given that the United States is Malaysia’s third-largest market for these products. Any disruptions could adversely affect Malaysia’s economic growth. Additionally, economic challenges in China, Malaysia’s largest trading partner, contribute to the ringgit’s depreciation. A weakening Chinese renminbi exerts further downward pressure on the ringgit due to their historical correlation.
The broader Asian currency market reflects similar trends, with investors maintaining bearish positions amid escalating trade tensions and potential U.S. tariffs. Currencies such as the South Korean won, Taiwan dollar, and Indonesian rupiah have also experienced increased short positions. Despite these challenges, some analysts believe that expectations of Federal Reserve interest rate cuts could help stabilize the ringgit. Growing concerns over a potential U.S. recession have fueled speculation that the Fed may implement further rate reductions, which could weaken the U.S. dollar and support emerging market currencies like the ringgit.
The Malaysian ringgit is under pressure from anticipated domestic rate cuts and global trade uncertainties. The interplay of these factors suggests a cautious outlook for the ringgit in the near term.
