BNM: Market determines ringgit’s exchange rate

> Bank Negara Malaysia governor says intervention should be confined to contain excessive volatility

KUALA LUMPUR: Volatility in the ringgit has not shaken the Malaysian central bank’s belief that market forces should determine the exchange rate, and intervention should be confined to containing excessive movements, the bank’s chief said.

The ringgit has fallen 1.7% in the past month, but is still up more than 4% since the start of the year, having been Asia’s worst performing currency last year.

Speaking at an economic forum here on Monday, Bank Negara Malaysia (BNM) governor Datuk Muhammad Ibrahim made his first public comments about the ringgit since the recent bout of volatility. The text of his remarks was made available yesterday.

“Despite the extreme volatility experienced in recent years, our thinking has remained the same – market forces ought to determine the direction and level of the exchange rate,” said the governor, who was appointed in May.

“The central bank’s role should be to contain the degree of volatility, which we know has significant implications for an open economy like ours,” he said.

Bearish factors influencing the ringgit have included weak export markets, low prices for Malaysia’s oil, gas and commodities, and concerns over state fund 1Malaysia Development Bhd.

“In the short term, exchange rate movements could react to news headlines and market sentiment, instead of reflecting the underlying strength of the economy,” Muhammad said.

He also said there was a misperception over Malaysia’s reliance on commodities, which he said accounted for 19% of exports, while the oil and gas industry accounts for 22% of government revenues.

The governor said it was important to ensure the availability of ample reserves, maintain strong economic fundamentals and manage exposure to external debt. – Reuters