Ringgit outlook hinges on US rates

By the Editorial Team · Friday, September 18, 2026

The US Federal Reserve raised its benchmark interest rate to 3.75%-4% and signaled a prolonged period of higher rates, putting pressure on the Malaysian ringgit. This sustained US rate advantage is expected to keep the ringgit weak in the near term, increasing volatility and impacting Malaysia’s bond market as investors favor higher-yielding US Treasury securities.

The Malaysian ringgit is expected to face continued pressure in the near term amid expectations of sustained higher US interest rates, following the Federal Reserve's recent decision to raise its benchmark federal funds rate by 25 basis points to a range of 3.75% to 4%. The move, coupled with a hawkish tone from Fed chairman Kevin Warsh, signals a potential “higher for longer” US rate environment that could widen the interest rate gap between the United States and Malaysia.

The Federal Reserve's decision came as the US economy showed resilience, prompting a unanimous vote to increase the rate. The central bank also revised its GDP growth forecasts upward, now anticipating 2.3% growth in 2026, up from 2.2%, and 2.4% in 2027, up from 2.3%. Inflation expectations, as measured by the personal consumption expenditures index, were adjusted higher to 3.7% from 3.6%.

Following the Fed announcement, the ringgit weakened against the US dollar in early trading on September 17, partially reflecting a catch-up after Malaysia’s observance of the Malaysia Day public holiday. Christopher Wong, foreign-exchange strategist at Oversea-Chinese Banking Corp Ltd, highlighted that the firmer US dollar and rising US Treasury yields contributed to the ringgit’s decline. He emphasized that while the Fed’s hike was broadly anticipated, the increased rate projections and inflation concerns have reinforced market expectations of elevated US rates for an extended period.

Wong noted that in the immediate term, the ringgit remains vulnerable to further shifts in US dollar strength and Treasury yields. Additional increases in short-term US Treasury yields could sustain support for the US dollar against the ringgit, though some of the recent moves may moderate if US rates stabilize. Looking beyond the short term, Malaysia’s solid macroeconomic fundamentals are expected to provide some resilience against broad US dollar appreciation. Wong projects the US dollar to ringgit exchange rate to finish 2026 near 4.02, assuming a less aggressive Fed tightening and stable oil prices.

Similarly, Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd, anticipates continued volatility for the ringgit amid ongoing expectations of further US rate hikes. He pointed out that Malaysia’s overnight policy rate, currently at 2.75%, is likely to remain steady throughout 2027, which will widen the interest rate differential with the United States and continue to favor the US dollar. This dynamic may also weigh on Malaysia’s bond market as investors seek higher yields in shorter-duration US Treasury securities, which track interest rate movements closely.

With the expected federal funds rate median projection at 4.1% by year-end, US yields are becoming increasingly attractive for fixed-income investors, particularly in the short-term segment. Mohd Afzanizam noted traders and investors may prefer short-duration instruments to mitigate interest rate risk amid the evolving monetary policy landscape.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.