Ringgit Outlook: BNM Holds At 2.75%

Ringgit Outlook: BNM Holds At 2.75%, Street Targets RM3.95 By Year-End

Bank Negara Malaysia's fourth 2026 hold anchors a constructive ringgit call — Kenanga and RBC see USD/MYR at 3.95 by year-end as export cash returns home.

Bank Negara Malaysia kept the Overnight Policy Rate at 2.75% on July 9, 2026 — the fourth consecutive hold this year — and that inaction, more than any single number, is what underwrites a bullish call on the ringgit: Kenanga Research and Royal Bank of Canada both see USD/MYR at 3.95 by December, roughly 3% stronger than Friday's 4.0722 close, on the bet that a stable domestic policy path plus mechanical repatriation of a record foreign-currency deposit stockpile can offset a Federal Reserve that is now less generous with rate cuts than markets assumed six months ago. The angle worth watching is the second-order one — this is not a story about Malaysian rates. It is a story about who converts what, and when.

The decision, and why the hold is the point

BNM's Monetary Policy Committee left the OPR unchanged for the fourth of six scheduled reviews in 2026, matching a Bloomberg consensus that 24 of 25 economists correctly called, according to The Edge Malaysia. The central bank characterised the stance as "appropriate and consistent with the outlook of continued price stability and sustainable economic growth," projecting GDP expansion of 4.0%–5.0% and inflation of 1.5%–2.5% for the year.

That is a narrow envelope, and it matters. The economy grew 5.4% year-on-year in the first quarter even as the West Asia conflict pushed energy prices around, and BNM said second-quarter indicators point to "resilient growth… driven by sustained domestic demand and stronger-than-expected export performance." Primary data from the bank's Financial Markets Infrastructure Platform show the OPR unchanged since the July 2025 cut, with daily FX turnover running at USD 19.01 billion — deep enough that intervention, if needed, does not have to be dramatic to be effective.

The IMF's 2026 Article IV assessment described the current stance as "broadly neutral" and reiterated that "maintaining exchange rate flexibility remains essential," language echoing the Fund's 2025 staff report. Translation: the Fund is not pushing BNM to move, and BNM is not moving. A predictable central bank in an unpredictable global cycle is itself a form of monetary policy — and, for the ringgit, it is the load-bearing one.

The convertible cash pile

The mechanical driver behind the 3.95 forecast sits in a single line item: record foreign-currency deposits of roughly RM316 billion held by Malaysian corporates as of May 2026. That balance is exporters' retained USD earnings — proceeds from a 45% year-on-year export surge in May that lifted the monthly trade surplus to a record RM40 billion (US$9.8 billion), as reported by Free Malaysia Today.

Those dollars are not lost to the ringgit — they are latent demand for it. On June 24, BNM pledged to intensify measures encouraging companies to repatriate and convert overseas earnings, a softer echo of the 2016 Supplemental Foreign Exchange Administration Rule that required 75% conversion of export proceeds. The 2016 episode is well-documented in IMF Working Paper 19/23: mandatory conversion widened onshore FX liquidity, narrowed bid-ask spreads, and reduced ringgit volatility. Academic work by Lau and Yip in the Wee-Yeap studies confirmed the mechanism materially strengthened the ringgit against the dollar in the following quarters.

The 2026 iteration is jawboning rather than mandate — but the deposit stockpile is larger. Since the June 24 announcement the ringgit has outperformed every Asian peer, according to RBC's Abbas Keshvani, who told Free Malaysia Today that "measures to encourage conversion are a crucial link between the trade surplus and currency performance." ANZ's Kausani Basak sees the currency reaching 3.80 — a level unseen since 2015 — arguing that "foreign currency deposit by businesses has increased during March–May and BNM's measures will help convert those deposits to ringgit."

The dollar side of the trade

The forecast's second leg is not Malaysian at all. It is dollar weakness — and here the consensus is fraying. Kenanga's 3.95 call rests explicitly on "expected broad US dollar weakness" through the second half, a view that presumes the Federal Reserve delivers the two 25-basis-point cuts markets have been pricing.

That is no longer a clean trade. FOMC minutes released this week reinforced concern that inflation may prove more persistent than expected, and the Peterson Institute for International Economics argues that the war-driven inflation impulse has forced most emerging-market central banks to abandon expected easing paths and, in some cases, prepare for the possibility of Fed hikes rather than cuts. The Atlantic Council notes that the dollar's current cyclical strength is "supported by the Federal Reserve's hawkish response to rising inflation following the Iran war," a view echoed in its recent commentary on the yen.

That disagreement is why the analyst distribution is wider than the headline suggests. MUFG, in a note flagged by KLSE Screener, sees USD/MYR overshooting to 4.10 in near-term volatility before stabilising. MBSB Research has quietly revised its ringgit forecast weaker, telling Xinhua via Kuala Lumpur News that "persistent global uncertainties" will keep the currency under pressure despite resilient domestic fundamentals. ANZ's 3.80 sits at the opposite tail. The Bloomberg-tracked consensus clusters between 3.95 and 4.00.

What the primary data actually show

BNM's own dashboard tells a less dramatic story than the analyst spread suggests. The KL USD/MYR reference rate printed 4.0665 on July 3, and 10-year Malaysian Government Securities yield 3.62% — a spread over 10-year US Treasuries that has narrowed with the Fed's own easing but remains attractive relative to regional peers. Global funds bought about US$2.1 billion of ringgit-denominated bonds through June 29, putting the market on track for its largest monthly inflow since May 2025, according to BNM data cited by FMT.

That bond bid is doing double duty. IMF Working Paper 19/23 documented that nonresident MGS inflows historically dampen — rather than amplify — ringgit volatility once BNM's onshore FX rules are in place. The current environment mirrors those conditions: liberalised but supervised FX rules, deep onshore hedging markets, and a trade surplus large enough to make speculative shorts expensive. The World Bank's June 2026 East Asia and Pacific outlook projects Malaysian growth at 5.4% in 2026 — the fastest sustained pace in ASEAN outside Vietnam.

Diplomat View

The Kenanga and RBC 3.95 call is defensible but conditional. It requires three things to remain simultaneously true through year-end: BNM holds at 2.75% at the September and November meetings, the Fed delivers at least one cut, and the West Asia ceasefire holds well enough to keep Brent from sustaining a spike that forces imported inflation into Malaysia's CPI.

Remove any leg and the target moves. A Fed that skips cuts pushes the pair toward MUFG's 4.10 territory — the ringgit is a rate-differential story before it is a fundamentals story. A renewed oil shock forces BNM to choose between the growth mandate and the inflation mandate, and history says it chooses inflation. A political shock around Malaysia's coming state elections — the "domestic political uncertainty" that even RBC and ANZ flagged — introduces a fourth risk that no G10 FX desk models well.

The falsifiable call: if USD/MYR is above 4.05 at the September 3, 2026 MPC review and BNM's guidance shifts away from "appropriate," Kenanga's 3.95 is not reachable and the consensus revises to a 4.00–4.05 range. Watch the deposit line, not the headline rate.

What to watch next

• September 3, 2026 — Fifth BNM MPC review of the year. Any change to the "fit for purpose" language would be the first crack in the base case.
• September 16–17, 2026 — FOMC meeting. A hold rather than a cut would compress the ringgit's rate-differential support and pressure the year-end 3.95 target.
• August 2026 — Q2 GDP release. Anything below the 4.0% floor of BNM's own band forces the growth-versus-currency trade-off into the open.
• Bond flow data through end-July — Sustained monthly foreign inflows above US$1.5 billion would validate ANZ's stronger 3.80 case; a reversal would confirm MBSB's downgrade.

The Bottom Line

Malaysia's ringgit path to 3.95 does not run through Kuala Lumpur — it runs through Washington and through the corporate treasury desks sitting on RM316 billion of unconverted export dollars. BNM's job at 2.75% is to be boring enough that the domestic story stops being the story; on July 9, 2026, it did exactly that. The forecast holds if the Fed cuts and the ceasefire holds. If either fails, the ringgit does not.