The USD (United States Dollar) to MYR (Malaysian Ringgit) conversion rate recently hit its lowest point on the 26th of February 2026, trading at RM3.88 per USD.
Screenshot taken from Google Finance
Ringgit Malaysia has also started being recognized as one of Asia’s fastest growing currencies, and best performing currency as of late, performing well even against other major currencies around the world.
Image taken from YouTube Video by Ziet Invests, with sources from Google Finance, and information dated back in 15th December 2025
Just in 2024, Malaysia was still trading roughly RM4.70 per USD, hitting a 26-year-low on the 20th February, exchanging RM4.795 per US dollar. So, how did Malaysia go from having one of the worst-performing currencies in Asia to its current position today? Why did the MYR suddenly strengthen so much? Or is its growth just riding on a weaker USD? In this article, we’ll go into details about various factors influencing the rise in MYR.
1. Narrowing Difference in Interest Rates
A few years back, the United States Feds (Federal Reserve Board) started increasing their interest rates dramatically, reaching 5.25% to 5.50% in 2023 to attract more investors to park their money in the US. It worked tremendously well, aiding the hike in USD, allowing it to soar. This phenomenon caused almost every Asian currency to fall victim to it, with Malaysia being no exception.
Image taken from YouTube Video showing United States’ Fed Rate Hikes from year 2022-2023, information can be found and verified on the Federal Reserve Bank of New York website.
However, in recent months, the US Feds has started consistently cutting its interest rates, now residing at the range of 3.5% to 3.75% following its announcement in January 2026; Meanwhile, Bank Negara Malaysia (BNM) has kept our Overnight Policy Rates (OPR) steady ever since its slight decrease in July 2025, sitting at 2.75%. Due to the fluctuating rates of US’ EFF (Effective Federal Funds), the gap between US’ and Malaysia’s rates have been narrowing.
Image taken from YouTube Video, showing interest rates between the United States and Malaysia narrowing throughout the year 2025.
This lessens the appeal of US to global investors as they no longer gain “extra” benefits from investing in USD anymore, and allows these investors to seek out growing currencies like MYR that have a more promising future.
With more investors pulling out their money from USD and investing in Malaysia’s assets instead, the demand for Ringgit increases, naturally strengthening our currency with it.
2. Malaysia’s Monetary Prudence and Fiscal Discipline
Monetary policy and Fiscal policy are the two major tools our government controls to manage the nation’s economy. Monetary policy includes central banks’ management of interest rates, the inflation our country requires to manage the economy, and price stability; while fiscal policy involves government spendings and taxation, subsidies the government gives out to citizens, and economic growth of a country. Both of these tools are only able to work smoothly together under the condition of political stability, ensuring policies don’t abruptly change overnight, and allowing investors to trust in a country’s economical security.
2.1 Cautiousness in Maintaining Monetary Policies
Following Malaysia’s current Prime Minister, Anwar bin Ibrahim’s election, the country’s political instability has slowed to a stop, giving space for Malaysia to grow economically. As a result, Malaysia’s government has been steadily managing the country’s interest and inflation rates.
As mentioned earlier, after the initial interest rate cut to 2.75% in July 2025, BNM has kept our OPR steady ever since, with claims of it being sufficient for our country’s growth while keeping inflation under control. According to Bloomberg’s survey of economists, BNM is expected to maintain our current interest rates in the future as well.
About inflation and contrary to what most believe in, the inflation in Malaysia isn’t as uncontrollable as we thought. Our headline inflation, also known as the raw inflation rate of the country’s economy, capturing all kinds of price changes in foods and services, averages at 1.4%, and is expected to remain moderate for the rest of year 2026; whereas core inflation, which records changes in costs of goods and services, excluding food and energy, lies at a 1.9%. That’s low compared to many other countries! A few examples to show in comparison would be South Korea at 2.4% for both headline and core inflation, Japan at 2.9% and 3.0% respectively, and Vietnam at 3.58% and 3.25% recorded.
Source from Bank Negara Malaysia website, Image taken from YouTube Video
With these components, foreign investors are able to see that Malaysia has predictable and secure monetary policies, less volatile inflation rates, and progressively attractive yields (natural, agricultural, or industrial products), which could lead to increased confidence in Malaysia’s financial and economical stability and incentivize them to invest in Malaysia.
2.2 Strict Management of Fiscal Policies
Government spendings of Malaysia in the past has always been heavily criticised due to its unsustainability, with the government consistently spending more than they earn.
Image from The Edge Malaysia, showing budget deficits of Malaysia since 1997 in percentage
Most of these spendings are spent on subsidies, which did help its citizens in the short term, but has become an increasingly worrisome hurdle the government must deal with to ensure steady economic growth.
How exactly does this situation become an obstacle in ensuring economical progress? This unmanageable spending method has scared investors away and drained our national reserve. Roughly 40% of Malaysia’s sovereign debts are borrowed from foreign countries. Therefore, with foreign money constantly flowing out instead of into our country due to the recent pandemic, political instability and negative government spending habits, all attempts at economic planning and reformation have been stalled, until recently.
Image taken from an article on Reuters back in 2021, and might no longer be accurate to today’s information
Over the last few years, Malaysia’s deficit-to-GDP (Gross Domestic Product) ratio has started decreasing. Deficit-to-ratio shows the country’s annual budget’s deficits in the form of percentage, with consistently high percentages indicating a country’s debt accumulation and slump in economic growth. This decrease is contributed by serious changes being made to improve our country’s dire situation, mostly through reducing the government’s operating costs and unfavourable spendings.
A few of these major changes are found in better tax collection such as expanded SST (Sales and Service Tax) of 5-10% sales tax being implemented back in 1st July 2025 on selected, non-essential goods, diesel subsidies effective back in June 2024, raising retail price by 56% to RM3.35 per litre, electricity base tariff raised to RM45.40 per kWh, and most recently, petrol subsidy rationalisation that set the market price of RON95 to RM2.60 per litre, with Malaysians paying a subsidized value of RM1.99 per litre. All these changes were done in order to prevent sudden price hikes, and unnecessary government spendings.
Image taken from YouTube Video, offering picture evidences to changes mentioned in the previous paragraph
The fruits of their labor came to fruition as they not only achieved, but surpassed their original deficit goal of 4.3%, bringing the GDP down to 4.1%. As of 2025, Malaysia’s GDP is at 3.8%, with the target of 3.5% in the coming year, and reaching 3% by 2028.
These economic changes have made it clear to foreign investors that Malaysia is serious about not letting our deficit get worse, leading to more and more funds going into our country, accelerating economic growth.
3. Malaysia’s Economic Growth in 2025
- In the 3Q (third quarter) of 2025, Malaysia’s GDP, the main indicator of a country’s economic state, increased by 5.2% as compared to 2024, surpassing the GDP in 2Q (second quarter) 2025 which sat at an increase of 4.4% year-on-year. The main components for this growth is made up of sustained household spending, steady investment activities, and higher net exports. As comparison, household spending decreased from 5.3% in 2Q to 5% in 3Q, investments activities became fixed at 7.4%, a huge drop from 2Q’s 12.1%, and net exports went from being in the negatives, at -72.6% in 2Q of 2025, to 17.7% in 3Q, a huge leap that definitely aided in our GDP growth.
Image taken from YouTube Video, source from Bank Negara Malaysia website, showing comparison between 2Q and 3Q of Malaysia’s GDP in 2025
- In 2024, Malaysia’s tourism took a soar to the skies, achieving great success in its performance. With over 37.9 million foreign visitors, this milestone achieved numbers close to pre-pandemic levels, representing 96% of 2019 visitors. As tourism spikes, more and more foreign currencies are being exchanged for the RM, strengthening the currency at the same time. This aids greatly in increasing Malaysia’s GDP as well.
Image taken from Malaysia Tourism Statistics in Brief, released in 2024, showing comparison with and growth from visitations in 2023.
- In the first 9 months of 2025, Malaysia has attracted RM280.2 billion worth of approved investments, a 13.2% increase from 2024. Adding onto that, over 50% of these investments are from foreign investors, reflecting the confidence investors have in the future of Malaysia’s economic development.
Image taken from MIDA (Malaysian Investment Development Authority) website, including comparison between the first 9 months of 2024 and 2025 concerning approved investments, domestic-to-foreign ratio, new jobs, and projects.
- From 2021 to September 2025, Malaysia has accumulated a total of 4,378 projects spread over manufacturing, services and primary sectors, creating over 152,000 new job opportunities for its citizens. As of September 2025, 85% of these projects have been implemented.
Image taken from MIDA (Malaysian Investment Development Authority) website, showing manufacturing projects from 2021 to September 2025.
3.1 Bonds Investments and How They Work
How exactly do foreign investors invest in Malaysia? Bonds, which work as a more professional version of an IOU (I Owe You), where investors essentially lend their money to our government with the promise of getting their principal back alongside regular interest distributed through coupons. The interest rates mentioned in an earlier paragraph are the interest rates Malaysia, and subsequently the United States, promises to give back to its investors.
To invest in a country, investors must purchase bonds, and bonds require foreign currencies such as US Dollar, Singapore Dollar, Euros, and many more to be converted into Ringgit. Consequently, billions and billions of ringgit are being converted through bond investments, raising the demand for RM tremendously. As of June 2025, Malaysia has become the top choice for bond investors in Asia’s debt markets.
In 2025 alone, foreign investors have purchased more than RM16 billion Malaysian bonds, truly pushing Ringgit Malaysia to become one of Asia’s best performing currencies.
Image taken from Sinar Daily
Conclusion
In conclusion, the future of Ringgit Malaysia will depend not only on the country’s political and policy stability, but also foreign investors’ interests and confidence in Malaysia as an emerging market.
According to OCBC senior ASEAN economist Lavanya Venkateswaran, agreed by several other analysts, the immediate hike in Ringgit Malaysia may slow down soon. However, as long as Malaysia continues with its diligent administrations, the ringgit should stay relatively stable and strong in the future as well.
Written by: Chai Yu Xin
Edited by: Sarah Wong
