The ringgit has been strengthening over the past few months, breaching the RM4 to the US dollar level to close at RM3.97 this week, taking it to a seven-year high.
This may look like fantastic news to many Malaysians, and to a certain extent it is, especially for importers. But it can also have a drastic effect on the economy.
This article will give a multi-faceted view of the impact of the ringgit gaining strength so a clearer picture can be formed to moderate expectations.
There are positive and negative aspects to look at. For instance, while a stronger ringgit may be good, it is also unlikely to be sustainable.
Looking at the big picture, we know several factors are helping to drive the ringgit. They include government policies such as the New Industrial Master Plan (NIMP) and the 13th Malaysia Plan’s push into digitalisation and AI, that have help to make Malaysia an increasingly attractive business hub.
But policies alone do not drive the value of a currency up by over 10% against the US dollar. This is a factor that many Malaysians have missed. Attributing the ringgit’s gain wholly to government policy leads to the assumption that the current value of the ringgit is stable and sustainable.
The fact is that it is the weakening of the dollar on a global scale, driven by uncertainty in global markets that are heavily influenced by the US protectionist economic stance, especially through tariffs, that is helping the ringgit to gain strength.
This has become clear since the US Liberation Day celebrations in April when the Trump administration’s tariff list was released.
Another factor leading to the ringgit breaching its years-long RM4 to the dollar mark is the US decision to impose tariffs on its Nato partners over Greenland. Markets do not like unpredictability, and this is one of the factors leading to a weakening of the US dollar, and by default, a strengthening of the ringgit.
While this not the only factor, it is a major one. Over time, when the fear subsides and policies become more predictable, we can expect to see the ringgit return to previous levels of over RM4 to the dollar.
It is unnatural to have the ringgit this strong. Understandably, imports have become cheaper and Malaysians’ spending power overseas has risen, but strengthening at this pace affects our export base industries given that there is little time for them to adapt.
Under normal circumstances, a currency strengthens when policies have taken effect and the overall business ecosystem has boosted its efficiency and created a desirable environment. This generally happens with improvements in logistics, trade, and productivity.
When these elements work in unison, the outcome becomes desirable, as exporters are able to adapt to a strengthening currency by ensuring they remain competitive in the demand space.
With increased productivity, they will still be able to match global prices and demand in an environment of a strong ringgit.
However, Malaysia’s economy has yet to mature to a level where we are no longer heavily reliant on FDIs as well as frameworks such as the NIMP.
Without these foundations, a strong ringgit can hurt Malaysian exporters, making them less competitive.
Malaysia is an export-based nation, with exports in 2025 making up RM1.61 trillion or 52.6% of total trade of RM3.06 trillion.
The impact of a strengthening ringgit can be drastic for the Malaysian economy given that we are still not yet as efficient as we should be.
If the value of the ringgit remains at or around RM3.97 to the dollar, it can affect future plans for Malaysia’s FDIs as well as the NIMP given that cash inflow may not be sufficient.
The hope is that this does not become an issue. Over the coming months to a year, a correction may come into play, and that can be healthy, as it allows us to understand how an unnaturally overvalued ringgit can have a drastic effect on us.
Understandably, this may be upsetting to many Malaysians, but this is the hard pill we have to swallow.
Making the base strong before you climb a tower is always the best option, and a weaker ringgit does not necessarily mean we have a weaker economy.
Overall, we as Malaysians have to understand that currently the ringgit is not ready to be this strong. Change takes time, and we need to improve our country’s groundwork before we can push for a stronger ringgit, and we are already doing that through various frameworks such as NIMP.
Sustainability must always be the priority over short-term gains.
Yugendran T Kannu Sivakumaran is an economic analyst at the Economics and Sustainability Impact Department at Bait Al Amanah.
The views shared are those of the writer and do not necessarily reflect those of FMT.
