By Nurunnasihah Ahmad Rashid
KUALA LUMPUR, Feb 27 (Bernama) -- Malaysia must not be fixated on the ringgit’s specific exchange rate level but rather on the currency’s long-term strength, as it reflects the overall health of the nation’s economy.
“Long-term currency strength ultimately reflects structural competitiveness, policy consistency and governance quality,” Bank Muamalat Malaysia Bhd’s chief economist, Dr Mohd Afzanizam Abdul Rashid, told Bernama.
He said this in view of expectations that the ringgit could test the psychological level of 3.80 against the US dollar and possibly hover between 3.78 and 3.80.
Analysts have predicted the ringgit could hover between 3.78 and 3.80 against the dollar.
Mohd Afzanizam attributes the Malaysian currency’s strength to improving sentiment and ongoing economic reforms.
As to when the ringgit would breach the 3.80 psychological level, he said the “timing of such a breakthrough remains uncertain due to external volatility and global currency dynamics”.
“Can it go to RM3.80? I suppose it can, but we have to remember the exchange rate never moves in a linear fashion,” he said.
The local currency ended firmer on Thursday at 3.8865/8925 against the greenback, compared with Wednesday’s close of 3.8900/8955. Dealers attributed the gains to Malaysia’s positive economic outlook, amid uncertainty over US tariff policy and US-Iran talks.
Earlier this week, an investment bank said the ringgit has the potential to climb further to 3.78 against the dollar after the US Supreme Court struck down President Donald Trump’s tariff policy, a move seen as benefiting emerging markets like Malaysia.
Mohd Afzanizam said that historical exchange rate patterns suggest the local currency has traded at stronger levels in the past, suggesting the possibility of further appreciation under supportive macroeconomic conditions.
“In the 1980s, the average for the ringgit versus the US dollar (USD/MYR) rate stood at RM2.4386, and between 1990 and 1996, the average rate was about RM2.6028.
“The ringgit hovered below RM3.00 in 2011, trading at RM2.9390 on July 27, 2011,” he added.
Mohd Afzanizam said these data points demonstrate that the ringgit has historically strengthened beyond current levels, adding that the currency “has the potential to appreciate further going forward”, subject to external and domestic developments.
The exchange rate movements remain contingent on the strength of the US dollar as well as Malaysia’s progress in transforming its economy to become more competitive and agile through policy consistency and structural reforms.
“That requires the right policy and consistent implementation of those policies,” he said.
Mohd Afzanizam added that political stability, robust governance and reform momentum are key ingredients in sustaining investor confidence and supporting currency performance.
Meanwhile, the economist said that foreign ownership in Malaysian equities stood at 19.2 per cent as of January 2026 compared with 25.3 per cent in May 2013, suggesting room for further capital market participation should policy credibility and economic fundamentals continue to strengthen.
He also said that the ongoing fiscal consolidation measures, including subsidy rationalisation, are positive signals that reinforce reform appetite under the government’s broader MADANI economic framework aimed at uplifting long-term economic prosperity.
“I opined that the ringgit has made a significant stride by becoming one of the best-performing currencies in Asia, and it is a reflection of market confidence after remaining in the doldrums for the longest time,” he said.
Mohd Afzanizam also concurred with the new 15 per cent tariff schedule announced by Trump soon after the court struck down his earlier International Emergency Economic Powers Act-based tariffs on Feb 20, 2026, which benefits emerging markets more than developed markets.
Reforms, Confidence Key to Trajectory
Meanwhile, CGS International Securities head of economics Nazmi Idrus said continued commitment to domestic economic and political reforms, alongside a weaker US dollar environment globally, could support further ringgit appreciation.
However, he noted that forecasting the currency’s exact trajectory remains difficult given prevailing uncertainties.
Nazmi projected the US dollar-ringgit pair at around 4.00 by year-end, expressing concerns that the local currency may have strengthened too rapidly relative to underlying economic fundamentals.
“Our projection is USD/MYR rate at 4.0 by year-end, and this is because the ringgit is too strong too fast, with risks including potential election developments and structural issues such as weak consumption and uncompetitive sectors,” he added.
Nazmi added that improvements in Malaysia’s macroeconomic narrative and investor perception would be the driving force behind any sustained move below the 3.80 level, rather than the exchange rate itself acting as a catalyst.
Ringgit's Peg of 3.80 as a Psychological Barrier
Malaysia pegged the ringgit at 3.80 to the dollar on Sept 2, 1998, at the height of the Asian Financial Crisis, under a series of capital controls to shield the economy and financial system from currency speculation by unscrupulous hedge funds and destabilising capital flows.
This was because, at one stage during the financial crisis, the ringgit traded as low as RM5.00, prompting the government to act decisively to arrest its slide, while regional currencies such as the Thai baht and Indonesian rupiah were also severely affected.
The peg was lifted in July 2005, when the ringgit last traded near 3.80 against the US dollar, a rate that holds strong psychological significance for many Malaysians.
The capital controls and the peg drew sharp criticism from the International Monetary Fund (IMF), which argued that market forces should determine exchange rates, but later acknowledged that they were an effective, albeit unconventional, policy for stabilising currencies.
The pegged rate remained in place for nearly seven years until July 21, 2005, when Malaysia shifted to a managed float regime, allowing the ringgit to fluctuate within a controlled band against a basket of currencies.
Before the financial crisis, the ringgit was reportedly trading at a very strong level of around 2.42 against the US dollar.
-- BERNAMA
