Why Malaysia's Ringgit Rally Could Have Legs

The Malaysian ringgit, Asia's top-performing currency last year, has further potential to strengthen as the nation's economy continues to show robust growth, according to Finance Minister II Datuk Seri Amir Hamzah Azizan.

In a recent interview, the finance minister suggested that official growth forecasts may soon be revised upward. He argued that the ringgit was undervalued in the past year and the market is now adjusting to its fundamental strength. This momentum is supported by January's capital inflows into Malaysia's equity and bond markets, a trend he expects to continue.

"I think the ringgit still has potential because growth is still intact in this country and it's still growing well," Amir Hamzah stated. The currency pared its losses during his remarks, trading at 3.9437 against the dollar in Kuala Lumpur.

A Resilient Economy Powers the Currency

Malaysia's economy has demonstrated impressive resilience, weathering challenges like US tariffs that have impacted global trade. This strength has allowed the central bank to hold its benchmark interest rate steady since July.

Economic performance is outpacing much of Southeast Asia, driven by several key factors:

• Strong Domestic Demand: Local consumption remains a solid foundation for growth.

• Strategic Investments: The country is attracting capital into high-value sectors like electronics, data centers, and energy transition projects.

In 2025, Malaysia's economy expanded by 4.9%, exceeding the government's own forecast of 4% to 4.8%. While the official projection for this year is a more moderate 4% to 4.5%, Amir Hamzah expressed optimism that Bank Negara Malaysia could raise this estimate in its upcoming review. He also noted a lack of catalysts that would cause inflation to rise this year.

Central Bank Holds a Steady Course

Bank Negara Malaysia (BNM) is focused on maintaining stability to support the economy. BNM Governor Datuk Seri Abdul Rasheed Ghaffour recently stated that while uncertainty remains high, he is "cautiously optimistic" about 2026.

"What's important for us is to ensure that we provide a conducive environment from monetary stability and financial stability for us to be able to achieve sustainable growth," he explained.

This sentiment is shared by the private sector. Datuk Seri Khairussaleh Ramli, CEO of Malayan Banking Bhd (Maybank), the country's largest bank, anticipates that BNM will likely keep interest rates unchanged throughout the year as economic growth moderates.

Fiscal Discipline and Diversification

The ringgit’s rally—up 3% this year after a nearly 10% gain in 2025—is not just a story about a weaker dollar. It is rooted in structural improvements, rising investment, and a clear government agenda for fiscal consolidation.

Prime Minister Datuk Seri Anwar Ibrahim's administration aims to narrow the budget deficit to 3.5% of GDP this year, down from a target of 3.8% in 2025. Amir Hamzah confirmed the 2025 target was "within reach," with final figures expected by the end of February. This commitment to fiscal health is designed to boost investor confidence.

A core part of this strategy is a deliberate shift away from reliance on petroleum-related revenue. The government is focused on diversifying its economic base, improving tax collection, and reducing subsidy spending.

"The key for Malaysia was the diversification," said Amir Hamzah. "The more we push for economic diversification, the more we improve our fiscal space and tax collections, the resilience of the fiscal space of the government is much better."