Ringgit expected to strengthen ahead of Budget 2026 on BNM stance

KUALA LUMPUR: The ringgit is likely to edge firmer ahead of the Budget 2026 announcement on Oct 10, supported by Bank Negara Malaysia’s (BNM) monetary policy stance and expectations of fiscal consolidation.

SPI Asset Management managing partner Stephen Innes said BNM, having cut rates once earlier this year, now appears likely to keep its benchmark rate at 2.75 per cent, removing the risk of further policy easing from the market.

“The Budget is also expected to stick to a consolidation path that trims the deficit incrementally,“ he told Bernama.

Combined with a softer US dollar backdrop, he said the ringgit could strengthen to around 4.20 against the US dollar if pre-Budget headlines reinforce fiscal credibility.

“My base case is that there will be at least two United States (US) Federal Reserve (Fed) rate cuts ahead. If the labour market weakens further or Washington’s fiscal problems become more entrenched, the Fed could even be forced to implement a 50-basis-point cut,” he noted.

On fiscal reforms, Innes expects the government to pursue incremental measures rather than a big-bang announcement.

“The direction is clear: moving subsidies from blanket to targeted, as seen with diesel and now RON95 under the Budi MADANI RON95 (BUDI95), and maintaining a deficit glidepath that slowly chips away at debt ratios,“ said Innes.

He stressed that maintaining spending discipline in Budget 2026, without introducing growth-hindering taxes, would help bolster medium-term investor confidence.

At the same time, he noted that Budget 2026 is less about a short-term boost and more about building a foundation for the ringgit to regain investor confidence in the months ahead.

Putra Business School Professor Dr Ahmed Razman Abdul Latiff shared a similar view, noting that fiscal reforms are likely to continue in Budget 2026, with further reduction of the fiscal deficit and more cost savings through subsidy rationalisation.

“These initiatives can help to support investors’ confidence and ringgit performance as seen recently during the announcement of RON95 subsidy rationalisation,“ he said.

On the upcoming budget announcement, he expects investors and markets to react positively, given the roll out of the 13th Malaysia Plan (13MP) initiatives.

“There should be no surprises, and under 13MP, there will be continuous monitoring to ensure less wastage and leakages,“ he added.

Prime Minister Datuk Seri Anwar Ibrahim, who is also the Finance Minister, is scheduled to table Budget 2026 in Parliament on Oct 10. – Bernama