InsightsFundingLast updated: 4 March 2024

The Ringgit Debate of 2024: A Strengthening Consensus, a Structural Counter-Argument and a Forecast Broken in Fifty Days

As 2023 drew to a close with the ringgit roughly 4.9% weaker against the US dollar, the consensus among economists pointed in one direction: after a year of underperformance, Malaysia's currency was expected to firm in 2024, even if its relative strength might still underwhelm, as The Edge Malaysia framed the year ahead. Three months later the same publication set out the opposite reading of the same currency — a structural argument that the ringgit's decline was not a cycle to be waited out but a competitiveness problem to be repaired — and in between, the currency itself fell about 5% against the dollar in roughly fifty days, breaking the strengthening case almost as soon as it had been made. This analysis reconstructs that debate: what the consensus forecast, the logic it rested on, the counter-argument that questioned the logic, and what the fifty-day reversal teaches about the craft of forecasting currencies.

The consensus entering 2024: firmer, but not strong

The starting point of the debate was the damage of 2023. The ringgit had depreciated about 4.9% over the year, and the outlook published in the weekly issue of December 25, 2023 (The Edge Malaysia, node 695185) framed 2024 as a year in which the currency's performance would hinge on two external variables: the pace and depth of US Federal Reserve rate cuts, and the strength of China's recovery. The headline itself carried a hedge that would prove prophetic: the ringgit was expected to firm, but its relative strength might still underwhelm. In other words, even the bull case was a modest one, and the modesty was deliberate.

That framing matters for how the rest of the debate should be read. A forecast of modest firming is not a forecast of strength; it is a forecast that the headwinds of 2023 would ease. The economists quoted in the outlook were not predicting a re-rating of the Malaysian economy. They were predicting that the two forces that had pushed the ringgit down — a restrictive Fed and a disappointing China — would stop pushing. Everything else in the consensus followed from that single assumption.

OCBC: the rate-cycle arithmetic behind RM4.58

Christopher Wong of OCBC expected a modest improvement in the ringgit, conditional on the Federal Reserve delivering rate cuts totalling 100 basis points from the second quarter of 2024. On that path his baseline put the currency at RM4.58 per US dollar by the end of 2024 and RM4.50 by the end of 2025. Equally telling was what he ruled out: a return to RM3.80–4.00 per dollar was, in his words, "not our baseline". The forecast was therefore a conditional statement about the US rate cycle rather than a bet on Malaysia itself. If the Fed cut on schedule, the yield gap that had punished the ringgit would narrow and the currency would recover part of the lost ground; if the Fed did not, the arithmetic simply would not run.

Read closely, the OCBC numbers also reveal the internal discipline of the consensus. A move from the depreciated end-2023 level to RM4.58 is a recovery of a few percent, not a revaluation. The explicit rejection of RM3.80–4.00 served as a guard against the kind of nostalgic forecast that anchors on where a currency used to trade rather than on what its fundamentals can now support. In that sense the most informative number in the whole outlook was not the RM4.58 target but the range the forecaster refused to quote.

Standard Chartered: two surprises, then outperformance

Edward Lee of Standard Chartered offered the cleanest causal story for 2023: the ringgit underperformed because of two macro surprises, the resilience of the US economy, which delayed and diluted expected Fed easing, and the weakness of China after its reopening, which disappointed the export and sentiment channel on which Malaysia depends. With both surprises exhausted, he argued, the ringgit "may outperform next year", and his end-2024 forecast stood at RM4.40 per US dollar — stronger than the OCBC baseline and among the firmer numbers in the consensus.

The two-surprise framing did important analytical work. It converted 2023 from a verdict on Malaysia into a run of bad luck: if the underperformance was caused by surprises, then its reversal requires no improvement in Malaysia at all, only the absence of further surprises. That is a powerful and comforting logic, and it is also the logic most exposed to a single counter-example. If the currency keeps weakening after the surprises are gone, the surprise story has quietly become a structural story — which is precisely the transition the second half of the debate would force.

The spread of the Bloomberg survey showed how tightly the profession had clustered. Forecasts ran from CIMB's RM4.38 to BNP Paribas's RM4.62 per US dollar, with a median of RM4.45 and an average of RM4.47. A range of twenty-four sen around a median, with the mean barely two sen away from it, is the statistical signature of a genuine consensus: forecasters disagreeing at the margin while sharing the same model of the world. Such clustering is usually read as confidence. As the following months would show, it is equally a measure of how many forecasters would be wrong together.

The pillars of the bull case

Beneath the individual numbers sat a shared bundle of mutually reinforcing expectations. The strengthening case did not rest on any single forecast; it rested on a set of drivers that, taken together, described a benign 2024 for emerging Asian currencies in general and the ringgit in particular:

• the US rate cycle: Federal Reserve cuts of about 100 basis points from the second quarter of 2024 would narrow the yield gap that had driven the ringgit's 2023 depreciation;
• China's recovery: a firmer Chinese economy would revive export demand and regional sentiment, the channel that had disappointed after the reopening;
• commodities: a recovery in commodity prices, notably crude palm oil and natural gas, would support Malaysia's terms of trade and its export earnings;
• capital flows: the outflows that had weighed on the currency were stabilising, removing a persistent source of selling pressure;
• positioning: foreign holdings of ringgit bonds were low, meaning there was little left for foreigners to sell and therefore room for returns without triggering new outflows;
• regional policy divergence: Bank Negara Malaysia (BNM) was holding its policy rate while peer central banks in the region cut, widening Malaysia's yield advantage over its neighbours.

Each pillar is individually plausible, and several are mutually supportive: Fed cuts lift bond appeal, commodity strength lifts the current account, and a steady BNM makes ringgit assets relatively more attractive just as global rates fall. The analytical weakness is not in any single pillar but in their correlation. Four of the six are external variables that Malaysia does not control; two are flow variables that describe the absence of selling rather than the presence of buying. A consensus built on the easing of headwinds and the exhaustion of sellers has no pillar that gets stronger if Malaysia itself improves. It is a forecast about the world being less hostile, not about Malaysia being better.

That structure also explains why the consensus was so narrow. When every forecaster uses the same external drivers — the Fed path, the China path, the commodity path — the disagreement left is disagreement about the timing of the same events. The RM4.38-to-RM4.62 survey range is not twenty-four independent views of Malaysia; it is one view of the global cycle expressed at slightly different confidence levels. The narrower the driver set, the tighter the cluster, and the more fragile the consensus when a driver outside the set turns out to matter.

The structural counter-argument: productivity, wages and the competitiveness valve

The second half of the debate arrived on March 4, 2024, in the weekly issue that carried The Edge Malaysia's structural indictment (The Edge Malaysia, node 704298). Its target was not a particular number but the entire rate-differential thesis: treating the ringgit's weakness as a function of yield gaps and Fed timing was, in the publication's assessment, "a big mistake". The weakness, it argued, was structural, and the headline stated the claim without hedging: the secular decline in the ringgit's value was due mainly to falling relative competitiveness, itself the result of decades-long poor government policies.

The timing gave the argument its force. The structural piece was published after the ringgit had already fallen about 5% against the US dollar in roughly fifty days of early 2024, in direct contradiction of the strengthening consensus. Where the December outlook had explained 2023 by two surprises, the March piece argued that no surprise was needed: a currency whose economy loses relative competitiveness year after year does not need a shock to weaken. It weakens by default, and shocks merely decide the timing.

A decade of relative productivity decline

The measurement at the centre of the structural case was productivity over ten years, expressed as real GDP per person employed. On that measure, Malaysia's growth was the slowest among its close neighbours. The emphasis on the word relative is essential: the argument was not that Malaysians became less productive in absolute terms, but that neighbouring economies improved faster. Exchange rates price relative performance, not absolute effort. An economy can grow, employ more people and still see its currency erode if the output produced per worker rises more slowly than the output per worker of the economies it trades with and borrows from.

A ten-year horizon also removes the comfort of cycles. A single bad year can be weather, a commodity slump or a pandemic; a decade of lagging relative productivity is a description of how an economy is built — its investment mix, its industrial policy, its education and skills pipeline, its allocation of capital. That is why the structural reading framed the ringgit's decline as secular rather than cyclical, and why it located the cause in decades-long policy choices rather than in any central bank's calendar.

When wages outrun productivity: depreciation as a shield

The second measurement completed the argument. Among the same peer group, Malaysia showed the highest gap between real wage growth and productivity gains: pay rose faster than the output per worker that ultimately pays for it. In an open, export-oriented economy that gap shows up as rising unit labour costs relative to competitors. Exporters cannot raise prices in world markets to match domestic cost growth, so the squeeze appears as lost margins, lost orders or lost market share — unless something else absorbs the adjustment.

In the structural reading, the exchange rate was that something else. A weaker ringgit lowers the foreign-currency cost of Malaysian labour and inputs, restoring to exporters the price competitiveness that productivity failed to deliver. Depreciation, on this account, is not an accident or an attack; it is a valve. It opens automatically whenever domestic costs outrun domestic efficiency, and it keeps the export machine running while the underlying problem — the productivity gap — is left untouched. That is why the currency could weaken even in a period when the consensus saw every cyclical pillar turning favourable: the valve responds to a pressure the cyclical pillars do not measure.

Two warnings framed the structural case and gave it a policy edge. The first was that a confidence crisis must be avoided: a structural critique of competitiveness is an argument for reform, not an invitation to panic, and a loss of confidence in the currency can turn a slow adjustment into a disorderly one. The second was the maxim that narratives follow facts. Markets and commentators construct their stories after the price has moved; the story is a summary of the path, not its cause. Applied to the ringgit, the maxim cuts both ways: the strengthening narrative of December 2023 was a summary of an expected path, and the fifty-day slide that followed would force a new narrative built on the path actually taken.

Fifty days that broke the consensus

In early 2024 the ringgit fell about 5% against the US dollar in roughly fifty days. Set against the December consensus — a median of RM4.45, an average of RM4.47, and a strongest case of RM4.38 — the move was not a delay of the expected recovery but its inversion. Within seven weeks of the year's start, the currency had travelled away from every point of the survey range, and it had done so before most of the consensus pillars could even be tested: the Fed had not yet begun the 100 basis points of cuts the baseline required, and China's recovery remained a promise rather than a data series.

The episode exposes three properties of consensus forecasting that the ringgit case illustrates with unusual clarity. First, year-end targets describe a destination, not a route; a forecast can be "right" about December and still be useless to anyone holding the currency through February. Second, a consensus built on the easing of external headwinds has no defence against a domestic driver that keeps pushing: the pillars of the bull case were all about the world becoming less hostile, while the structural valve kept opening regardless. Third, speed matters for credibility. A 5% drawdown in fifty days does not merely contradict a forecast; it changes the conversation, because narratives follow facts, and the fact now on the table was a falling currency.

It is worth noting what the reversal did not prove. It did not refute the cyclical mechanics: Fed cuts, commodity strength and returning flows can still lift a currency for a period, and later in 2024 the ringgit would indeed recover ground. What the fifty days refuted was the completeness of the cyclical story. A framework that cannot explain a 5% move against its own consensus while its drivers are still pending is a framework missing a variable — and the structural case had named that variable months before the slide: relative productivity, relative wages, and the competitiveness valve that links them to the exchange rate.

Lessons for currency forecasting

The 2024 ringgit debate is a compact case study in how a professional consensus forms, hardens and fails. Distilled, it offers several lessons that travel well beyond Malaysia:

1. Separate cyclical from structural drivers before forecasting. Cyclical drivers — rate cycles, commodity swings, positioning — set the path over quarters; structural drivers — relative productivity and unit labour costs — set the ceiling over years. A forecast that includes only the first will repeatedly mistake a ceiling for a floor.
2. Treat consensus clustering as a risk indicator, not a comfort. A median of RM4.45 against an average of RM4.47 and a twenty-four-sen range signals that forecasters share one model of the world; when the shared model omits a driver, the errors are correlated and arrive together.
3. Rate differentials are a channel, not a law. The yield gap transmits policy divergence into currency prices, but it does not override a competitiveness trend; calling the differential thesis the whole story was, in The Edge Malaysia's phrase, a big mistake.
4. Forecast the path as well as the level. Year-end targets carry no information about drawdowns; the fifty-day, 5% slide shows that the route can invalidate the destination for every practical purpose.
5. Watch which narrative the price is writing. Narratives follow facts: when the currency moves against the consensus, the consensus story is already being rewritten, and the forecaster's job is to notice the rewrite before it is complete.
6. Respect the confidence constraint. Structural critiques are arguments for reform; the warning that a confidence crisis must be avoided is a reminder that currency debates have a financial-stability dimension that pure forecasting ignores at its peril.

None of these lessons disqualifies consensus forecasting; the ringgit did eventually respond to the cyclical forces the December outlook described. What they disqualify is consensus forecasting without a structural audit — a checklist that asks, before any target is published, what happens to the currency if the world cooperates and the domestic economy still fails to keep up with its neighbours.

What the debate leaves behind

The two readings of the ringgit were never simply contradictory. The cyclical case described the conditions under which the currency could rally; the structural case described the ceiling on that rally and the reason rallies fade. The fifty-day episode of early 2024 showed which force dominates on short horizons when the two disagree, and the subsequent history of the currency would show that neither force can be ignored for long. For policymakers the debate left an uncomfortable division of labour: the central bank can defend confidence and manage the valve, but only productivity and wage discipline can close the gap that keeps opening it. For forecasters it left a simpler instruction — check the ten-year record before quoting the twelve-month target, because in the end, as the structural half of the debate insisted, narratives follow facts.