Kuala lumpur: Kenanga Investment Bank Bhd (Kenanga IB) forecasts that the Malaysian ringgit will stabilize by the end of August as the US dollar is expected to relinquish some of its previous gains. This prediction comes in the wake of the US Federal Reserve's decision to maintain interest rates during its July meeting.

According to BERNAMA News Agency, Kenanga IB reported that the local currency continued its decline from June, depreciating by an additional 0.3 percent in July to an average of 4.08 against the US dollar, compared to 4.07 in June. The ringgit mostly traded within the projected range of 4.07-4.10 against the US dollar. The investment bank noted that heightened tensions in West Asia and increasing energy prices bolstered the US dollar, whereas softer US inflation and labor market data lessened expectations of further tightening by the Federal Reserve.

Kenanga IB also highlighted that all ASEAN-5 currencies experienced depreciation against the US dollar, as the US dollar index increased to 100.9 in July from 100.3 in June. Among these currencies, the Thai baht saw the most significant decline at 1.8 percent, followed by the Philippine peso at 0.7 percent, the Indonesian rupiah at 0.6 percent, the Malaysian ringgit at 0.3 percent, and the Singapore dollar at 0.2 percent. The investment bank attributed the sustained demand for the US dollar to renewed geopolitical tensions and higher energy prices, while softer US inflation data and the anticipated pause by the Fed tempered the overall strength of the US currency towards the end of the month.

In addition, Kenanga IB reported a decrease in Bank Negara Malaysia's (BNM) international reserves by US$0.5 billion, bringing the total to US$132.1 billion as of July 31, 2026. This marks the first decline in four months, primarily driven by a reduction in foreign exchange reserves. The foreign currency reserves specifically fell by US$0.4 billion to US$116.8 billion, likely due to significant foreign outflows from the domestic bond market. Correspondingly, net FX reserves dropped to US$81.3 billion in June from US$83.4 billion in May, largely due to a substantial increase in short positions amounting to -US$27.2 billion. Holdings of other reserve assets decreased by US$0.1 billion to US$2.2 billion, while gold, special drawing rights, and the IMF reserve position remained relatively stable.

Looking ahead to monetary policy, Kenanga IB anticipates that Bank Negara Malaysia will maintain the overnight policy rate at 2.75 percent through 2026, as underlying inflation remains controlled and economic growth stays robust. The investment bank advises monitoring the Producer Price Index for any signs of cost pass-through into the Consumer Price Index but expects cost pressures to remain manageable. Unless broader second-round inflationary pressures arise, BNM is likely to overlook temporary supply-driven shocks and prioritize policy stability.