Ringgit, economy face tariff headwinds, say analysts

Free Malaysia Today

10-07-2025

An analyst said the ringgit is expected to reach RM4.25 per dollar in the third quarter before strengthening to RM4.15 at year end.
PETALING JAYA : Tariff concerns will likely weigh on Malaysia's currency and economy in the near term, according to analysts, after the country's central bank cut its benchmark interest rate for the first time in five years.
Bank Negara Malaysia (BNM) called its decision a 'pre-emptive measure' in the face of growing risks for the Southeast Asian nation's economy, given slower global trade, weaker sentiment and lower-than-expected commodity production.
The policy easing was a closely called outcome, with 13 of 23 economists surveyed by Bloomberg News expecting a rate reduction.
The ringgit has risen over 5% versus the dollar this year, joining a rally among most Asian currencies amid the greenback's global retreat.
Here is what some strategists and economists are saying about the rate decision:
Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp, said the ringgit may face headwinds in the near term.
The currency may now be driven by tariff concerns on semiconductors, copper and pharmaceuticals given the Malaysian economy's exposure to these products in trade.
Ng said he expects the currency to reach RM4.25 per dollar in the third quarter before strengthening to RM4.15 at year end.
The 25% reciprocal tariff rate on Malaysia has likely tilted the balance towards a rate cut today.
'We continue to expect Malaysia's GDP growth to slow to 4.1% in 2025, with some negative effects likely to spill over into 2026,' said Lloyd Chan, FX strategist at MUFG Bank.
A key downside risk could stem from Donald Trump's threat to impose a 10% tariff on BRICS nations.
'While Malaysia is not a full member of BRICS, it joined as a partner nation.
'We are not looking for further rate cuts for now, unless growth slows materially below 4% this year, which is currently not our baseline,' Chan said.
Today's rate cut is already pre-emptive. A key downside risk to growth could come from sectoral tariffs on semiconductors.
'If this materialises, there could be more rate cuts.
'On the ringgit, we think domestic macro resilience will provide a crucial offset to trade headwinds,' Chan said.
This, along with our anticipation for further US dollar weakness, inform our outlook for US dollar/ringgit to fall to RM4.11 by end-2025.
Meanwhile, Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp said the market has not fully priced in another rate cut after this.
'Given the somewhat dovish statement, there appears to be small room for ringgit rates to fall,' Cheung said.
'We expect the Kuala Lumpur Interbank Offered Rate (KLIBOR) to follow the overnight policy rate (OPR) lower, but not fully, resulting in a mild rewidening in KLIBOR-OPR spread,' said Sanjay Mathur, an economist with Australia & New Zealand Banking Group.
BNM probably brought forward the anticipated rate cut owing to global economic policy uncertainty which was accentuated by the Trump administration's decision to impose a 25% tariff on Malaysia's exports.
Typically, BNM does not do back-to-back cuts unless the economy is in recession.