Ringgit Shows Recovery, Emerging as Top ASEAN Currency in Early 2024

The Malaysian ringgit experienced a challenging 2023, but has seen a remarkable turnaround, emerging as the best-performing currency in the ASEAN region in early 2024. This recovery follows a period where the ringgit faced significant depreciation against the US dollar, influenced by external economic factors.

At the beginning of 2023, the ringgit was trading at RM4.3965 (approximately $0.94) against the US dollar. It declined throughout the year, hitting a low of RM4.735 on 19 October 2023, the lowest closing level since 1998. The ringgit closed the year at RM4.634, marking a 5.40% decline against the US dollar for the full year.

“The ringgit's recent appreciation is driven by an improvement in external factors and strengthening domestic fundamentals.”AMRO, 2024 Annual Consultation Report

Bank Negara Malaysia (BNM) noted that the ringgit depreciated by 3.9% against the US dollar in nominal effective terms in 2023 and was the second worst-performing currency of the year. The central bank cautioned that the ringgit remains vulnerable to external economic pressures, particularly from advanced economies' monetary policies, but emphasized that the decline was not indicative of Malaysia's economic fundamentals, which remained strong.

In recent months, the ringgit has benefited from a narrowing interest rate differential between Malaysia and the US, as the Federal Reserve began a monetary easing cycle. This shift has led to increased foreign portfolio inflows into Malaysia, bolstering investor confidence and supporting the currency's value. Analysts at AMRO noted that improving growth prospects and fiscal reforms have made Malaysian assets more attractive to investors.

“The combination of improving growth prospects and fiscal reforms has made Malaysian assets more attractive to investors.”Analysts, AMRO

Furthermore, BNM's recent reports indicate that Malaysia's economy is expected to grow between 4-5% in 2024, supported by resilient domestic expenditure and a potential recovery in exports. This positive outlook has further strengthened the ringgit's position in the regional market.

Despite the recent gains, experts caution that the ringgit remains vulnerable to external economic pressures, including the Federal Reserve's rate outlook and China's growth prospects. Other risks include geopolitical tensions and fluctuations in global oil prices.