Strong ringgit reflects investor confidence in Malaysia’s economic policies

SHAH ALAM - The strengthening of the ringgit against the US dollar was expected to continue in the short to medium term, driven by several external and domestic factors.

Universiti Malaya’s Business and Economics Faculty Deputy Dean (Development) Dr Goh Lim Thye said the recent move by the US Federal Reserve to lower interest rates by 50 basis points to a range of 4.75 to 5 per cent weakened the attractiveness of US dollar investments.

"This reduction, a response to domestic economic pressures in the US, led investors to seek other markets offering better returns, such as Malaysia.

"This increased demand for the ringgit and supported its strengthening.

"Domestically, Malaysia's economy performed impressively. In the second quarter of 2024 (April-June), the economy grew by 5.9 per cent compared to the previous year, accelerating from 4.2 per cent in the previous quarter," he told Sinar when contacted.

According to Goh, this reflected a strong economic recovery and heightened economic activity, driven by reforms under the Madani Economy.

"This manifesto strengthened Malaysia's appeal as a foreign investment destination.

"Approved investments rose by 18 per cent to RM160 billion in the first half of 2024, creating over 79,000 new job opportunities that supported the ringgit’s value," he said.

He stated that the strengthening of the Chinese yuan, as China is Malaysia's largest trading partner, also contributed to the ringgit's strength.

"The yuan reached its strongest level after Beijing implemented stimulus measures to support its slowing economy.

"This not only boosted Malaysia's trade but also strengthened the competitiveness of Malaysian exports in international markets, thereby supporting the ringgit," he added.

From a macroeconomic perspective, Goh pointed out that the combination of the weakening US dollar due to interest rate cuts, increased Foreign Direct Investment (FDI) into Malaysia, and the strengthening of the yuan was expected to continue supporting the ringgit's value.

"This suggests that the ringgit will remain strong in the near term as investors continue to seek opportunities in Malaysia, particularly with the political stability fostered by policies," he said.

A Reflection of Macroeconomic Stability

Goh emphasised that while many countries faced economic turmoil due to high inflation, rising interest rates, and geopolitical challenges, Malaysia maintained sustainable growth, as seen in its 5.9 per cent GDP growth in the second quarter of 2024.

"The strengthening of the ringgit reflected global market confidence in Malaysia's ability to handle these global challenges.

"More importantly, it demonstrated strong economic fundamentals, political stability, and policies focused on long-term development and sustainability.

"This also signalled to international investors that Malaysia was a stable and profitable investment destination, especially when other countries were grappling with economic uncertainties," he added.

He highlighted that the economic strategy under Prime Minister Datuk Seri Anwar Ibrahim’s administration had shown early promising success, particularly with the significant increase in approved investments.

Although not all of these investments would immediately translate into foreign direct investment (FDI) inflows, Goh stated that it reflected strong confidence in Malaysia's economic prospects.

"The success of the Madani Economy strategy, which stressed fiscal reforms, prudent budget management, and a focus on infrastructure development, has created political and economic stability that bolstered foreign investor confidence.

"While these early successes are evident, the next challenge is ensuring that all approved investments translate into actual inflows and deliver long-term benefits to the local economy," he said.

Goh also urged policymakers to continue strengthening Malaysia’s competitiveness as an investment destination.

"Malaysia's drop to 34th place in the IMD global competitiveness report highlights a challenging path ahead.

"The report identifies five key challenges: investing in research and development (R&D) to boost business resilience, increasing labour productivity, updating policies and regulations to compete globally, adopting advanced technologies to accelerate productivity growth, and reducing rising costs through productivity improvements.

"Moving forward, the Madani Economy strategy must address these challenges to keep Malaysia competitive globally and attract more investments that will positively impact the economy," he said.