PETALING JAYA: Solid fundamentals and a resilient domestic economy should continue to prep up the ringgit’s strength, despite mixed signals still emanating from the Middle East conflict, say economists.
However, they acknowledge that, if the newsflow is to be believed that President Donald Trump is moving to “wind down” operations in Iran and multiple countries had begun discussions to reopen the Straits of Hormuz, then this would be a welcome catalysts for the further appreciation of the local note, especially against the US dollar.
The apprehension with regards to updates from external factors, particularly on the ongoing war, is understandable, given the often-contradictory statements made by both sides of the conflict thus far.
Economist Geoffrey Williams observed that the ringgit has eased about 3.7% since the Middle East conflict entered a more explicit stage on Feb 28, from RM3.88 at the end of February to RM4.02 last Friday.
He said the decline has been “orderly and gradual”, pointing to the idea that the ringgit is still stable.
Williams told StarBiz that while any news of the de-escalation of hostilities and opening up of the Strait of Hormuz will cause a normalisation of economic activity and a fall in oil prices, this is likely to happen progressively because supplies have been disrupted, and would need time to return to full capacity.
“Oil tankers currently queuing in the Strait of Hormuz would also need time to get to their destinations.
“Hence, although there may be some price adjustments the actual impact and normalisation will be months away,” he cautioned, adding that the ringgit will be driven by news and by Malaysia’s own economic and currency fundamentals.
Sunway University economics professor Dr Yeah Kim Leng continues to see the external situation as a double-sided coin, remarking that a drop in Brent crude oil price next week will be positive for the global and Malaysian economy, but continuing volatility and elevated prices at close to US$110 a barrel will be a persistent choking point.
Nevertheless, he told StarBiz that the prospects of lower oil prices and less severe supply shortages will be favourable to Malaysia’s trade balance as the recovery in world demand will boost the country’s exports and long standing trade surplus.
“A winding down of the Middle East crisis will also be positive for the ringgit as risk premium declines while portfolio capital flight to safety eases. Foreign investments that have been paused will also be green-lighted.
“Overall, due to its large international exposure, the Malaysian economy and its currency stand to gain from a de-escalation of the war, resolution of the global energy crisis and easing of supply shocks,” said Yeah.
Meanwhile, economist and associate professor at the Universiti Kuala Lumpur Business School Dr Mohd Harridon Mohamed Suffian believes Malaysia could take advantage of the opportunity to garner more portfolios, through investors seeking more secure havens from geopolitical infringements.
He pointed out that this would help elevate the standing of the ringgit against the greenback, besides strengthening the economic vibrancy of the country.
Yeah concurred, noting that besides being a net energy exporter, Malaysia’s safe-haven status is being enhanced by lingering tensions and instability in the Gulf Cooperation Council countries.
He said: “Malaysia and other Asian countries are likely to see greater interest among investors from these oil-rich nations as well as global investors reconfiguring their investment portfolio in the aftermath of the war in the Middle East.”
More importantly, Mohd Harridon told StarBiz it would be helpful to observe the consumer price index or CPI data of the United States and China – both of which are scheduled to be released late next week – as these values would have a bearing upon the capacity of the ringgit to strengthen against major currencies.
A benign US CPI could mean the Federal Reserve may see more windows for lowering rates, and hence would be an additional catalyst for ringgit appreciation.
However, a soft CPI in China would signal continued weakness in consumption, potentially pressuring commodity demand such as palm oil and electronics components which are key Malaysian exports.
On the other hand, if markets interpret lower Chinese CPI as paving the way for more stimulus, it could support Asian emerging market currencies including the ringgit via better regional growth prospects.
Elaborating on the relevance of key foreign data to the local note, Yeah said due to the global energy shocks, most countries including the United States and China are expected to see worsening economic data, starting with inflation followed by other indicators on production, employment, trade and growth that are expected to be hit by second-order impact on supply and demand.
“Malaysia’s international reserves have been on a rising trend. Any mild and temporary correction is unlikely to raise concerns due to the strengthening currency and reversal of short term capital outflows.
“The adequate reserves is further supported by trade and current account surpluses,” he added.
An economist with a foreign think tank said these key economic indicators in Malaysia, the United States and China should constitute a mild net support for the ringgit, pointing to Bank Negara Malaysia’s (BNM) 2026 growth forecast of 4% to 5%, underpinned by a constructive inflation outlook.
“As such, any de-escalation in addition to benign data mix keeps the ringgit on a gradual appreciation path.
“The reserves print scheduled by BNM tomorrow sets the tone early; this Friday’s CPI announcement in the United States and China should dominate this week’s sentiment into the following week,” she said.
At the same time, economist Doris Liew opines that what insulates the ringgit, at least in the near term, is the strength of its underlying fundamentals.
BNM’s foreign reserves remain adequate, she says, and the government’s decision to contain domestic fuel price pass-through, absorbing the fiscal cost rather than exporting inflationary pressure to households and firms, has preserved Malaysia’s relative price stability.
“The outlook, then, is asymmetric and path-dependent. If the conflict is contained and resolution comes within a reasonable horizon, the ringgit’s fluctuations are likely to prove transient. But a protracted conflict is a different calculus entirely.
“Malaysia’s export-oriented growth model, built on the assumption of open, low-cost global trade, is acutely vulnerable to a world where those assumptions no longer hold.
“In that scenario, the ringgit would face not just short-term pressure, but a more fundamental reassessment of Malaysia’s growth prospects,” said Liew.
