KUALA LUMPUR (Jan 2): The Malaysian ringgit will strengthen further this year, supported by moderate global growth, stable oil prices and strong export demand, according to KSI Strategic Institute for Asia Pacific.

The ringgit is likely to trade 4.00-4.20 against the US dollar this year under the base case scenario, the independent think tank said in a report. KSI’s forecasts point to a much more optimistic outlook for the ringgit than the median 4.49 predicted in a Bloomberg poll of currency strategists.

KSI said the ringgit could potentially head towards 3.90-4.00 against the greenback, “if global oil prices remain high and Malaysia benefits from increased foreign investment and robust trade demand”.

The ringgit was Asia’s best performing currency in 2024 after rising over 6% to close at 4.47 against the US dollar, thanks partly to stronger-than-expected economic growth. Further, coordinated efforts to encourage inflows have also aided.

Malaysia has been encouraging its sprawling state-owned enterprises and government-linked investment companies to convert and repatriate foreign currencies stashed abroad. The central bank has also engaged corporates and private businesses in a massive effort to support the currency.

KSI flagged geopolitical tensions, higher US interest rates and domestic inflation could lead to volatility in 2025 for the ringgit.

This year, Malaysia’s economic growth could moderate to 4.9% while inflation will likely pick up to average around 2.7%-3.0%, according to KSI’s forecast, amid reaction from ongoing domestic policies and the heightened external challenge from the incoming Trump administration.

The official gross domestic product forecast calls for a 4.5%-5.5% expansion in 2025, with the government expecting inflation to come in at 2.0%-3.5%.

Further, global financial stress, capital outflows or rising global interest rates could weaken the ringgit and pose downside risks towards 4.30 or above against the US dollar, the think tank added.