(Bloomberg) -- The Malaysian ringgit is poised to extend its rally after what’s likely to be its best quarter since 1973, if the outlook for interest rates is any guide.

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The ringgit has risen more than 12% against the dollar so far this quarter, making it the best performing emerging-market currency. Narrowing rate differentials with the US, improving trade performance and attractive asset valuations may help the ringgit strengthen further, analysts said.

Robust economic growth and a potential pickup in consumer prices if the government proceeds to remove some fuel subsidies may keep Bank Negara Malaysia on hold into 2025 even as other central banks start to lower borrowing costs. Foreign investor flows and further conversion of foreign currency deposits will also support the ringgit.

“Malaysia’s current account surplus, neutral central bank stance and stable fundamentals may help with further gains in light of dollar weakness,” said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp. “This is particularly so if markets expect more rate cuts by the US, reducing yield differentials between the US and Malaysia.”

The ringgit has been on a tear since April after a rebound in exports and efforts by the central bank to encourage state-linked firms to repatriate overseas investment income. The rally picked up steam this quarter as investors bet on Southeast Asian winners amid the prospect of policy easing by the Federal Reserve.

Global funds have poured a cumulative $2.5 billion into the nation’s bonds in July and August, and bought $1.2 billion of local equities since end-June, according to data compiled by Bloomberg.

The ringgit would also benefit from a rotation into Asia after foreign investors were overweight on Latin American currencies over the past year, according to Chandresh Jain, a strategist at BNP Paribas. “This flow should continue for some time,” he said.

Malaysia’s consumer prices rose 1.9% year-on-year in August, slightly below expectations, data on Monday showed. The ringgit was little changed against the greenback at 4.2055 per dollar on Monday.

Market indicators suggest the current surge in the ringgit may be stretched, signaling a potential consolidation in the near term. Traders will be keeping a close eye on the country’s budget announcement next month for its progress on subsidy reforms and fiscal deficit.