Affin Bank sees ringgit ending 2026 at 4.05 as rate gap narrows

KUCHING (Jan 16): The ringgit is expected to strengthen in 2026 on the back of a narrowing interest rate differential between the United States and Malaysia with the currency likely to end the year around 4.05 against the US dollar.

According to Affin Bank group chief economist Alan Tan Chew Leong, major central banks in the US and Europe have begun cutting interest rates while Bank Negara Malaysia (BNM) is expected to keep its policy rate unchanged.

He said that expectations of further US rate cuts, even if limited, would support the ringgit.

“The narrowing of the interest rate differential between the US and Malaysia would favour the ringgit.

“We may see the ringgit fluctuate and even break the 4.00 level at times, but our base case is for it to hover between 4.00 and 4.05, ending the year at 4.05,” he said during Affin Group’s Chinese New Year dinner held here on Thursday night.

Tan added that while the US Federal Reserve may only cut rates twice in 2026, this would still provide some support to the local currency.

As of this week, the ringgit edged modestly higher, trading in a narrow range of 4.05 to 4.06 against the greenback.

On the broader economy, Tan warned that the ongoing trade war between US and China could have negative implications for Malaysia’s trade but highlighted that Malaysia is entering 2026 from a position of strength, with solid domestic demand expected to cushion any unexpected export slowdown.

As such, Affin Bank projects Malaysia’s gross domestic product growth at about 4.3 per cent in 2026, slightly lower than the estimated 4.6 per cent recorded last year.

He noted that domestic demand will be catalysed by Visit Malaysia Year 2026, which is expected to receive close to 35 to 40 million visitors.

“Tourist arrivals into Malaysia will lead to higher tourism spending, and therefore translating into higher consumer spending. This would provide a catalyst for domestic demand,” he explained.

Tan added that private investment is also seeing a “revival,” especially in areas such as data centres in Kuala Lumpur and renewable energy projects in Sarawak which are likely to generate positive multiplier effects across the economy.

On inflation, Tan said price pressures are expected to remain manageable at around 1.7 per cent this year.

He expects Bank Negara Malaysia to maintain the overnight policy rate (OPR) at 2.75 per cent, citing global economic uncertainties and the need to support growth.

‘In view of the economic growth uncertainty surrounding global environment due to tariff, the expectation is that BNM will likely focus on economic growth.

“All major central banks in the world, they have the dual mandate of ensuring stable inflation as well as economic sustainability, hence BNM is likely to maintain OPR at a culminating level of 2.75 per cent,” he added.