Ringgit Weakens Amidst Foreign Capital Outflows and Stronger Dollar

The Malaysian Ringgit is experiencing a sustained decline, primarily driven by persistent outflows of foreign investment from Bursa Malaysia and a robust US Dollar. Economic analyst Prof. Emeritus Dr. Barjoyai Bardai explained that global investor sentiment currently prioritizes safe-haven assets due to geopolitical uncertainties and a challenging global economic outlook.

This trend leads international investors to favor holding assets in US Dollars rather than channeling funds into emerging markets like Malaysia. Bardai highlighted that the local stock market's weakness and the absence of significant foreign inflows are limiting the Ringgit's potential for strengthening. He added that a return of foreign investors would increase demand for the Ringgit, thereby boosting its value.

Bardai also pointed to the interest rate differential between the US and Malaysia as a key factor influencing international investors' decisions. Higher interest rates in the US make it a more attractive investment destination, strengthening the dollar and pressuring other currencies, including the Ringgit. Despite Malaysia maintaining relatively low inflation, external factors such as geopolitics, commodity prices, and global capital movements significantly dictate the Ringgit's direction.

Furthermore, Bardai suggested that Bank Negara Malaysia's decision to maintain the Overnight Policy Rate (OPR) might be contributing to the Ringgit's weakness. Typically, higher interest rates are used to absorb excess liquidity and control inflation. Bardai observed that BNM appears passive in this regard, possibly to avoid adding pressure on businesses, particularly micro, small, and medium enterprises (PMKS), despite potential inflationary pressures.