KUALA LUMPUR (April 4): The Malaysian ringgit is expected to weaken in the coming quarters due to the US's latest tariff measures, before strengthening towards the end of the year, according to United Overseas Bank (UOB).

The research house forecasts that the ringgit will slide to 4.6 against the US dollar in the second quarter of 2025, and 4.7 in the third quarter, before recovering to 4.6 in the fourth quarter of the year. It will then strengthen further to 4.55 in the first quarter of 2026, it said in a note released on Friday.

The local currency is currently trading at 4.4368 against the greenback.

This anticipated period of weakness will occur despite Malaysia's robust economic and financial fundamentals, largely due to escalating global trade tensions, particularly the US's reciprocal tariffs.

"Its [the ringgit's] close correlation to the Chinese yuan means that the ringgit would inevitably feel the drag of a weaker Chinese yuan, which we now expect may weaken to an 18-year low of 7.8 per dollar by 3Q2025," the report stated.

The forecast comes after US President Donald Trump announced on Wednesday an executive order imposing a 24% tariff on goods imported from Malaysia, effective April 9, as part of a broader trade policy affecting all its trading partners. The tariff rates range from 10% to 50%.

These reciprocal tariffs have also raised inflation concerns in the US, leading markets to anticipate more interest rate cuts by the US Federal Reserve this year — 100 basis points (bps) by year-end — compared to the previously expected 75bps.

Nevertheless, UOB is keeping to its expectation that Bank Negara Malaysia (BNM) will maintain the overnight policy rate at 3% for the time being.

BNM has been adopting a monetary policy stance that supports the economy and aligns with assessments of inflation and growth prospects.

While domestic consumption is projected to be the primary driver of Malaysian economic growth in 2025, Trump’s tariff measures are expected to negatively impact export-oriented factories in the country.

Consequently, economists have revised their gross domestic product (GDP) growth estimates. CIMB Securities has reduced its forecast by one percentage point to 4%, while UOB has lowered its projection by 0.7 percentage point to 4%.

The official government forecast for the GDP is a 4.5% to 5.5% growth.