The think tank said the recovery demonstrates how financial markets react to expectations rather than real economic fact.

“We find ourselves again in a situation where an excess of money supply may not only trigger excessive consumer spending, but also push investments in directions justified only by the abundance of capital, rather than by the existing structure of supply and demand.

“Let us not forget that quantitative easing in the past year already ignited the tech speculative bubble,” CME said in a statement.

CME added that the higher degree of political stability experienced by Malaysia compared with regional peers also boosted the positive trend guided by expectations.

It went on to claim that nothing in the Malaysian economic fundamentals, politics or economic policy has really changed between the big depreciation in February 2024 and the current recovery.

It was reported on Oct 1 that the ringgit has become the world’s best-performing currency against the US dollar, according to MUFG Bank senior analyst Lloyd Chan.

Data from Bloomberg showed the ringgit had appreciated 14.35% against the US dollar over the last three months, beating gold, which rose by 14.2%, into second place.

Chan attributed the ringgit’s bullish recovery to Malaysia’s economic growth and the US Federal Reserve’s ongoing interest rate easing cycle.

“Market expectations for more US rate cuts since July have fuelled the ringgit’s sharp rally in the second half of this year.

“As the ringgit was ‘cheap’ at the end of the first half of the year, it provided scope for the currency’s appreciation,” Chan told FMT.

Meanwhile, CME called for the government to announce a holistic tax reform and restructuring in the upcoming 2025 budget to help consolidate the ringgit’s position and that could be easily enforced.

“In previous years, some steps in terms of fiscal consolidation were carried out, mostly adding new and targeted taxes, while little has been done on restructuring the spending side in a radical way,” it said.

CME said the pillars of such a budgetary reform would be a slight reduction in the income tax, the introduction of a multi-tier goods and services tax, as well as a special and simplified fiscal scheme for microbusinesses.

It also urged the government to revise the profitability of GLCs via gradual rationalisation, which it said “implies closures, consolidation and opening to the market”.