THE ringgit’s appreciation trend is compelling, marking a significant reversal from years of weakness, signalling a clear shift toward greater macroeconomic stability and enhanced confidence in Malaysia’s economic trajectory, driven by resilient domestic demand, targeted structural reforms, and a revitalised investment landscape.
After losing by a cumulative 13.2% against the US dollar for three years in a row (between end-period RM4.1760 and RM4.5915) in 2021-2023, the ringgit had experienced a significant and rapid appreciation, turning from one of Asia’s worst-performing currencies in 2023 to its best-performing in 2025.
It had appreciated by 10.2% against the US dollar to RM4.0570 per US dollar as at Dec 31, 2025, marking the second consecutive year of appreciation (2.7% to RM4.4700 at end-Dec 2024).
As of Jan 28, 2026, the ringgit reached its strongest level in over seven years, approaching RM3.9205 per US dollar mark.
The years which witnessed the ringgit’s appreciation of more than 10% mark against the US dollar were in 2010 (11.1% to RM3.0835) and 2017 (10.4% to RM4.0620).
Since the de-pegging of the ringgit’s fixed RM3.800 per US dollar in July 2005, there were three distinctive phases of the ringgit’s movement against the US dollar, transitioning from a period of relative strength and appreciation (2005-2011) to a broadly long-term depreciation trend (2012-2023) before experiencing a rebound in the second-half of 2024 (2H24) to 2H25.
Throughout these periods, the ringgit’s performance has been heavily dictated by external shocks such as the 2008-2009 Global Financial Crisis (GFC), the US Federal Reserve’s (Fed) monetary policy stance, and the Covid-19 pandemic crisis.
Others include global commodity markets development, as well as domestic factors such as Bank Negara Malaysia’s (BNM) interest rate policy, public policy changes, the political landscape and the 1Malaysia Development Bhd (1MDB) scandal.
The ringgit post-peg period 2005-2007 was marked by a steady appreciation of the ringgit to RM3.3065 (end-period) at end-December 2007, underpinned by strong economic growth performance (average 5.9% per annum), a gradual reduction in fiscal deficit (from minus 5.5% of GDP in 2000 to minus 3.1% in 2007), large current account surpluses (average 15.3% of GDP per annum) and sustained inflows of foreign direct investment or FDI (RM67.2bil).
However, the ringgit had succumbed to downward pressure during the 2008-09 GFC, hitting RM3.4640 at end-December 2008 and RM3.4245 at end-December 2009 on domestic economic downturn, massive fiscal stimulus-inflicted higher budget deficits (minus 4.6% of GDP in 2008 and minus 6.7% in 2009), lower interest rates, and capital reversal with BNM’s foreign reserves declining by US$9.8bil in 2008.
Crude oil and palm oil prices firmed higher in 2011-2013. The ringgit bounced back to appreciate sharply by 11.1% to RM3.0835 per US dollar at end-December 2010.
The period 2012-2019 witnessed its structural weakening and high volatility, particularly triggered by the 1MDB scandal, which had severely eroded investors’ confidence, leading to capital flight.
In 2013-2015, foreign-exchange reserves had declined by US$44.4bil to US$95.3bil at end-December 2015 from US$139.7bil at end-2012.
Additionally, the Fed’s taper tantrum, transitioning to a normalisation of an extended period of low interest rates resulted in the narrowing of interest rate differentials between Malaysia and the United States from 275 basis points (bps) in 2012 to 125 bps in 2019, causing capital outflows.
In 2013-2016, the ringgit had depreciated by a cumulative of 35.8% against the US dollar. In late 2016, BNM had implemented several measures to stabilise the ringgit, and these included export proceeds conversion of at least 75% and restrictions on the ringgit non-deliverable forward (NDF)-related transactions.
During the Covid-19 pandemic crisis in 2020-2021 and post pandemic recovery (2022-2023) amid intense political instability, the ringgit saw increased volatility and slipped against the US dollar to hit a low of RM4.7440 on Nov 7, 2022, largely driven by the Fed’s aggressive interest rate tightening cycle (2022-2023: 4.50%-5.50% vs 2020-2021: 0.00%-0.25%) to combat inflation. The ringgit had fluctuated throughout 2023, hitting its lowest point at RM4.7875 on Oct 26.
The period 2024-2025 saw the ringgit reversing its multi-year downward trend against the US dollar from the first half-year of 2024 (minus 2.7%) to a 5.6% rise in 2H24, taking a full-year appreciation rate of 2.7% in 2024 (RM4.4700 at end-December 2024) and a further 10.2% to RM4.0570 at end-December 2025.
The ringgit’s momentum continues in January to early February 2026, appreciating by 2.9% to RM3.9430 as of Feb 3, 2026. Malaysia’s international reserves increased by US$9.3bil to US$125.5bil at end-December 2025, marking the highest level in 11 years.
The fundamental drivers for the ringgit remain positive. We believe that the conditions are primed for a sustained strength in the ringgit against the US dollar.
The US dollar’s weakening bias has provided a favourable, “risk-on” environment that has strengthened many emerging market (EM) currencies, including the ringgit, and fuelled capital inflows.
We put in context of the ringgit’s upward trend, to ascertain whether its appreciation is transitory in nature or likely to be sustainable in the long run. Over a period of 17 years (2008-2025) since the 2008-09 GFC, the ringgit had depreciated by 0.9% per annum.
A confluence of ongoing factors is undermining sentiment in the US dollar. During times of market volatility, global investors usually see the dollar as a safe haven. But not this time around.
The US dollar debasement, driven by massive US debt, budget deficit, inflation risk due to the tariffs, and loose monetary policy along with accelerated de-dollarisation are key drivers that weakened the US dollar.
These factors, coupled with the investors’ confidence in the Fed’s credibility and independence, geopolitical sanctions and strategic central banks’ diversification into gold, have ended a 15-year bull cycle for the US dollar.
Interest rate differentials between the United States and Malaysia have narrowed from 250 bps in 2023 to 100 bps in 2025, and could narrow further in 2026.
The new Fed chair with a consistently dovish tone could reinforce expectations for easier monetary policy, even if the FOMC committee remains divided.
Strong domestic economic and financial fundamentals can withstand future shocks. Real GDP growth had expanded by 5% per annum in 2024-2025; headline inflation remains manageable at an average 1.6% per annum; and a robust labour market condition with the unemployment rate at 11-year low of 2.9% in November 2025.
Banks are maintaining strong capitalisation levels, supported by healthy liquidity buffers and solid asset quality. The capital market is deep and liquid.
Structural reforms to rebuild medium-term fiscal and debt sustainability, the implementation of subsidies rationalisation, price control reforms and fiscal discipline measures have resulted in a steady reduction in fiscal deficit from 5.5% of GDP in 2022 to 3.8% of GDP in 2025 and estimated 3.5% of GDP in 2026 (6.2% to 6.4% of GDP in 2020-2021).
New government borrowings have decreased progressively from RM99.5bil in 2022 to RM91.4bil in 2023, RM79.2bil in 2024, RM76.7bil in 2025 and is projected at RM74.6bil in the 2026 budget.
Fitch, S&P and Moody’s have consistently maintained Malaysia’s sovereign credit ratings, typically at BBB+/A- with a “stable” outlook, reflecting confidence in the government’s economic management and transformation. Key drivers include a well-diversified economy, consistent export-driven growth, strong financial sector resilience, and active fiscal consolidation reforms.
Malaysia’s strategic transformation plans have attracted FDI, driven by the Madani Economy Framework, New Industrial Master Plan 2030 and National Energy Transition Roadmap, among others, seeing a surge in FDI related to data centres, electronics and electrical products, telecommunications and the AI supply chains.
Net FDI inflows have totalled RM139.9bil in 2024-2025 and RM211.4bil in 2020-2023. Net foreign purchases of government bonds expanded further to RM23bil in 2025 (RM1.3bil in 2024).
Going by a massive cumulative approved FDI of RM882.3bil in January 2021 to September 2025, it will translate into sizeable gross inflows of foreign capital, assuming 85% investment realisation rate, taking into account the time lag and progress of the implementation of projects.
BNM’s strategic measures to encourage the repatriation and conversion of foreign investment income by government-linked companies and government-linked investment companies have been effective in supporting and strengthening the ringgit, resulting in more consistent and sustained inflows into domestic financial market.
The outlook for the ringgit is considered sustainable and on a positive trajectory, with its value to settle between RM3.7800 and RM3.8500 per US dollar over next six to 12 months.
There remain risks to its trajectory, facing potential volatility from global geopolitical events, global growth slowdowns, volatility in commodity prices and exports, as well as being tested in 2H26 if the US dollar stabilises.
Malaysia’s lower trade ratio (reduced from an average of 170.1% per annum in 1997-2010 to 135.8% per annum in 2011-2025) and shrinking current account surplus to an average 1.6% of GDP per annum in 2024-2025 from 14.7% GDP per annum in 2003-2009 has resulted in a lower external balance that would be a negative metric for the ringgit, as it reduces a traditional pillar of support for the local currency.
Malaysia has to expand its exports to rebuild sustained larger current account surplus as it reflects strong external financial health, reduced pressure on foreign reserves, and often leads to greater currency. Expanding bilateral currency framework for the trade settlement is to reduce the dependency on the US dollar.
Lee Heng Guie is the executive director of the Socio-Economic Research Centre. The views expressed here are the writer’s own.
