Kuala lumpur: The ringgit is projected to strengthen to 4.08 against the US dollar by the end of 2025, driven by Malaysia's macroeconomic stability, ongoing reforms, and investor rotation out of US assets, according to Kenanga Investment Bank (IB) Bhd.

According to BERNAMA News Agency, Kenanga IB highlighted in a note that Malaysia continues to present selective investment opportunities, buoyed by corporate earnings repatriation. This is despite Bank Negara Malaysia's (BNM) July rate cut, which narrowed the real yield gap and slightly reduced the appeal of bonds.

The bank reported that foreign exchange deposits reached a record RM292.8 billion in July. Additionally, BNM's Qualified Resident Investor programme has provided increased incentives for firms to convert their holdings.

Over the next 9-12 months, the US dollar is expected to weaken due to fiscal concerns and Federal Reserve easing, though a near-term rebound is anticipated as market positioning normalizes. This situation presents an entry point into emerging market assets, with Malaysia distinguished as a reform-driven market.

Kenanga IB stated that BNM is likely to maintain its current monetary policy stance, preserving space for potential future economic shocks. This is supported by resilient domestic demand, with the mining sector set to recover and services expanding steadily, thus cushioning external weaknesses.

The bank noted that with steady growth and manageable inflation, the current policy rate at 2.75 percent remains suitable. A rate cut appears unnecessary as long as domestic demand remains strong, although BNM will continue to be guided by data.

However, Kenanga IB cautioned that inflation risks are emerging after a quiet start to the year. Factors such as the lagged effects of the Sales and Services Tax, subsidy reforms, and higher minimum wages are likely to drive prices higher. Nevertheless, the absence of excess demand, improving supply capacity, and targeted fiscal support are expected to contain these pressures.