Malaysia's ringgit strengthened to 3.99 per US dollar on January 23, reaching levels last seen in January 2021 and testing the competitiveness of the country's export-driven manufacturing sector.
The currency opened at 4.0285 per dollar following Bank Negara Malaysia's decision to hold the Overnight Policy Rate at 2.75 percent, continuing a rally that has seen the ringgit appreciate more than 12 percent since its 2025 low of 4.51 in early October.
Kuala Lumpur's decision to maintain rates while the US Federal Reserve signals potential cuts later in 2026 has narrowed interest rate differentials and supported the Malaysian currency. The Dollar Index fell 0.48 percent to 98.287 points as US inflation data showed Personal Consumption Expenditures rising to 2.8 percent in December.
But the ringgit's strength presents a double-edged sword for Malaysia, where exports account for 60 percent of GDP—among the highest ratios in Southeast Asia.
Export Sector Pressure
Malaysia exported 1.54 trillion ringgit ($384 billion) worth of goods in 2025, with electrical and electronics accounting for 40 percent, palm oil 6 percent, and petroleum products another 9 percent. A stronger ringgit makes these exports more expensive in dollar terms, eroding price competitiveness against Thailand, Vietnam, and Indonesia.
The country's rubber glove manufacturers—which supply an estimated 65 percent of global demand—face particular pressure. Companies including Top Glove, Hartalega, and Supermax derive 90-95 percent of revenues in dollars while incurring costs in ringgit. Each 10-sen appreciation in the ringgit translates to millions in reduced dollar-equivalent earnings.
Penang's semiconductor manufacturers, which produced $72 billion in chips and components last year, similarly compete on thin margins where currency movements directly impact contract renewals.
"The ringgit's strength reinforces policy stability, but exporters will feel the pinch," Bank Muamalat Malaysia's chief economist told reporters. "Electronics firms quoting prices in dollars for six-month contracts suddenly find their ringgit revenues falling even as order volumes remain steady."
Regional Divergence
The ringgit's rally contrasts sharply with currency trends across neighboring economies. Indonesia's rupiah has weakened to 16,100 per dollar, Thailand's baht trades near 34.5, and the Philippine peso hovers around 59—all providing relative export advantages.
Against regional currencies, the ringgit's performance was mixed. It strengthened 2.5 percent against the Japanese yen and 1.8 percent against the Philippine peso, but weakened against the British pound, euro, Singapore dollar, and Thai baht.
Bank Negara Malaysia maintains that currency levels reflect fundamental economic strength rather than speculative flows. The central bank cited 3.8 percent GDP growth in the third quarter of 2025, declining inflation to 2.1 percent, and foreign reserves of $116 billion—sufficient to cover 5.8 months of imports.
Trade-Off Calculations
For ordinary Malaysians, a stronger ringgit translates to cheaper imported goods, from Australian beef to Japanese electronics to foreign education. But for the 2.8 million workers in export-oriented manufacturing—earning median wages of 2,500-3,000 ringgit monthly—currency strength that undermines their employers' competitiveness poses employment risks.
The ringgit's appreciation also affects Malaysia's 3.8 million foreign workers, predominantly from Bangladesh, Indonesia, Nepal, and Myanmar, who remit an estimated $12 billion annually. A ringgit at 3.99 per dollar yields significantly fewer dollars sent home compared to 4.50.
Analysts project the ringgit could test 3.90 per dollar if US economic data continues weakening and the Federal Reserve cuts rates. Whether that benefits or harms Malaysia depends on which weighs heavier: import costs saved by consumers or export revenues lost by manufacturers.
Ten countries, 700 million people, one region—and for Malaysia, the question is whether currency strength reflects economic confidence or creates a competitiveness crisis. The answer will become clear in the coming quarters as export orders either hold or shift to cheaper neighbors.
