KUALA LUMPUR – The Malaysian ringgit is on track for its strongest quarter since 1973, with the central bank expected to refrain from cutting interest rates, which could extend the currency’s rally.

So far this quarter, the ringgit has surged more than 12 per cent against the US dollar, making it the top-performing currency among emerging markets.

Against the Singapore dollar, the ringgit has risen by 6 per cent, climbing from 3.4762 per Singdollar on June 28 to 3.2584 on Sept 20.

Analysts suggest that narrowing interest rate differentials with the US, improving trade figures, and attractive asset valuations could further strengthen the ringgit.

Strong economic growth and a potential rise in consumer prices—if the government removes some fuel subsidies—might prompt Bank Negara Malaysia to hold off on rate cuts through 2025, even as other central banks ease borrowing costs.

Additionally, foreign investor inflows and increased conversion of foreign currency deposits will support the ringgit.

“Malaysia’s current account surplus, the central bank’s neutral stance, and stable fundamentals could drive further gains, especially in light of US dollar weakness,” said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp. “This is especially likely if the US cuts rates, narrowing the yield gap between the US and Malaysia.”

The ringgit’s rally, which began in April following a recovery in exports and efforts by the central bank to encourage state-linked firms to repatriate overseas earnings, gained momentum this quarter as investors bet on Southeast Asia amidst potential policy easing by the US Federal Reserve.

Global investors have poured a combined US$2.5 billion (S$3.2 billion) into Malaysian bonds in July and August, and bought US$1.2 billion in local equities since late June, according to Bloomberg data.

BNP Paribas strategist Chandresh Jain noted that the ringgit could also benefit from a shift in investor focus to Asia, following heavy investments in Latin American currencies over the past year.

“This trend should continue for a while,” he commented.

On Sept 20, the ringgit closed 0.1 per cent higher at 4.2037 against the US dollar.

While market signals suggest the ringgit’s current surge may be overextended, hinting at a potential near-term consolidation, traders will closely watch the upcoming October budget announcement for updates on subsidy reforms and fiscal deficit.

In the longer term, “there’s no doubt that the ringgit is attractively valued and cheap based on its effective exchange rate,” said Wee Khoon Chong, a strategist at Bank of New York Mellon. BLOOMBERG