This article first appeared in The Edge Malaysia Weekly on November 10, 2025 - November 16, 2025

IN a largely expected move last Thursday, Bank Negara Malaysia kept the overnight policy rate (OPR) unchanged at 2.75% at its last monetary policy committee (MPC) meeting for the year. The neutral tone of the committee’s statement prompted expectations that the key rate will be stable in 2026.

Following the latest development, the ringgit inched up further against the US dollar last Friday, hitting a 13-month high of 4.179. Year to date, the local currency has appreciated 7.11% against the greenback. It has also strengthened against many other major and Asean currencies this year.

Economists say the ringgit’s climb is partly due to expectations that Bank Negara will not cut rates further. Meanwhile, the US Federal Reserve is expected to make another rate cut in December. In this scenario, the interest rate differential is likely to tilt in favour of the ringgit.

The UOB Global Economics and Markets research team has forecast USD/MYR at 4.18 in 4Q2025, 4.16 in 1Q2026; 4.13 in 2Q2026 and 4.10 in 3Q2026.

The general weakness in the greenback reflects the softer US economic data, says CGS International Securities head of economics Ahmad Nazmi Idrus. With the US government shutdown entering its 38th day — the longest ever in history — there are rising uncertainties surrounding the health of the US economy.

On the other hand, Malaysia’s domestic market appears to be in a more positive position. The expectations of interest rates being held steady going forward is an indication of a more sustained economy.

Nazmi points out that the 3Q2025 advance gross domestic product (GDP) estimate came as a surprise and exports continued to hold steady while the recent trade deal with the US has given Malaysia additional exemptions from the reciprocal tariff.

“Market expectation of GDP growth next year is quite modest. I think if the current momentum stays, we might be on the upper end of market growth forecasts,” he observes, noting that it is one of the reasons to be optimistic about the ringgit’s outlook.

The official GDP forecast for 2026 sits at 4% to 4.5%, although most economists’ estimates put it closer at the lower end of the official forecast.

In Kenanga Research’s weekly ringgit outlook report on Nov 7, it notes that the local currency’s strength comes even as the US Dollar Index traded firmer near the 100-point level.

“Foreign investors added RM1.6 billion to Malaysian bonds last week as expectations of a Bank Negara rate cut faded and growth optimism returned. The central bank’s continued pause has bolstered confidence, while fiscal discipline and political stability have helped Malaysia stand out among its regional peers,” says the report.

Kenanga Research says it believes that domestic data will drive the ringgit’s performance this week, particularly as the ongoing US government shutdown clouds global market direction. The research house estimated that the Fed would cut interest rates three times in 2026, given the lingering weakness in the US labour market.

“Even if the Fed delays easing in December, the broader trend still favours a softer US dollar and a firmer ringgit. Sustained foreign inflows, coupled with potential repatriation of foreign earnings, should continue to support the ringgit,” it says, adding that it expects the ringgit to appreciate further and trade within 4.15 to 4.20 against the US dollar in the coming weeks.

In the light of this, how a stronger ringgit will impact export-oriented companies and whether it will affect tourist arrivals bears watching.

CGS International Research says in a Nov 6 report that if the appreciation of the ringgit continues going into 2026, coupled with falling commodity prices, import costs could fall, leading to a tapering inflation rate. “This could ease any lingering pressure from the recent price reforms such as the sales and service tax expansion, water tariff increase and fuel subsidy removal, and allow Bank Negara to keep its eye on growth — in particular the close monitoring of any potential tariff shock and negative spillover effect from financial market overvaluations.”

Interestingly, Bank Negara highlighted “elevated valuations in the financial markets” as one of its concerns in its statement.

As the outlook for 2026 looks positive, with the resilient domestic economy and firm labour market, the central bank says global trade remains a key risk for its economic outlook, arising from potentially higher tariffs, especially product-specific ones and an escalation in geopolitical tensions.

CIMB Research highlights that while electrical and electronics (E&E) exports have held up, non E&E shipments contracted 2.8% y-o-y in the first nine months of the year (9M2025) amid tariff disruptions and subdued demand.

“Moreover, persistent weakness in business and working capital credit growth, alongside slowing export-oriented industrial production, reflects emerging fragility consistent with past pre-easing cycles in 2016 and 2019,” says the research house.

Bank Negara expects inflation to remain moderate in 2026 amid the continued easing in global cost conditions. It adds that inflation is expected to remain stable and close to its long-term average.

OCBC Research expects the headline inflation to remain stable at 1.5% in 2025 and 2026.

Indeed, inflation has not spiked despite the recent subsidy rationalisation, averaging at 1.4% for 9M2025, says CIMB Research. “While mild labour market tightness has contributed to a slight uptick in core inflation, overall price pressures remain contained, providing Bank Negara with sufficient policy flexibility should growth conditions warrant further easing,” it adds.

CIMB Research has a growth forecast of 4.1% for 2026, backed by resilient domestic demand. It is one of the outliers, however, as it expects the OPR to be reduced by 25 basis points (bps) in the second quarter of 2026. Its rationale is that a slowdown on the external front is likely to emerge, amid softer demand from major trading partners, thereby weighing on Malaysia’s overall export outlook.

Another outlier is OCBC Research, which is projecting a 25bps rate cut next year. Its growth forecast of 3.8% for 2026 is below the official forecast as it expects weaker external demand and reduced exports to the US to come into play as the effects of frontloading fade.

“Exports to the US were significantly higher in the first few months of 2025 compared to previous years, suggesting there could be some payback in early 2026. The sector-specific semiconductor tariff will also have implications for Malaysia as E&E exports (HS code 84 and 85) were about 69% of total exports to the US in the first three quarters of 2025,” it says.

RHB Research is more bullish on the economy, projecting a 4.7% growth in 2026. It opines that while the impact of higher tariffs would continue to weigh on global growth, the outlook remains supported by resilient labour market conditions, moderating inflation, less restrictive monetary policy and supportive fiscal policy. It says the upside potential could include a milder tariff impact on economic activity and pro-growth policies in major economies. 

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