No intervention likely to actively boost ringgit

Bank Negara committed to a pro-market strategy

“Ringgit movements will continue to be market-determined. The foreign exchange market continues to function and intermediate effectively.” Tan Sri Nor Shamsiah Mohd Yunus

PETALING JAYA: Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus said the policy priority should be to sustain economic growth in an environment of price stability and to further strengthen domestic economic fundamentals through structural reforms.

“This will provide a more enduring support for the ringgit. Malaysia remains an open economy,” said Nor Shamsiah rather than resorting to capital controls or re-pegging of the ringgit which has hit 24-year lows against the greenback this week.

The central bank, she added, continues to closely monitor and ensure orderly financial market conditions amidst external developments that have led to persistent strength in the US dollar against almost all currencies, including the ringgit.

“Ringgit movements will continue to be market-determined. The foreign exchange market continues to function and intermediate effectively,” the governor stated.

The central bank noted daily onshore foreign exchange transaction volume has been increasing throughout the year, reaching a current average of Us$13.3bil (Rm60.88bil) against Us$11.3bil (Rm51.73bil) in 2021, amid two-way flows.

“Bond market activity remains healthy, well supported by institutional investors and financial institutions. Bank Negara’s market operations will ensure sufficient liquidity and orderly functioning of financial markets,” the central bank said, adding the tighter global financial conditions and higher volatility in the foreign exchange markets are not expected to derail Malaysia’s economic growth.

Analysts believe Bank Negara is unlikely to actively intervene in the foreign market market to determine the ringgit’s value versus the US dollar.

Centre for Market Education CEO Dr Carmelo Ferlito said the central bank’s latest statement shows it is committed to a pro-market strategy.

“I do not think they will actively try to determine the exchange rate.

“The weakness of the ringgit is not simply based on monetary policy. The strength of the US dollar now is not simply determined by the aggressive US Federal Reserve (Fed) policy.

“Bank Negara has been more prudent than the Fed both in lowering and raising rates,” he said.

This has helped contain inflation in Malaysia to be less worrying than in Western

countries.

“But obviously Bank Negara’s expansive policy contributed to inflation too. Now, I believe Bank Negara should remain committed to a gradual path toward normalisation, while the value of the ringgit will be determined by factors such as the clearing of the political climate and a new leap forward towards a generally business-friendly environment,” Ferlito said.

Sunway University professor of economics Dr Yeah Kim Leng told Starbizweek the central bank may provide limited support but not at the expense of reserves depletion as several countries in the region had learnt the hard way during the Asian Financial Crisis in 1997 and 1998.

“As observed in its foreign currency management and operations, the interventions by Bank Negara is directed at ensuring orderly functioning.

“Excessive daily fluctuations are minimised so as not to disrupt business, trade and financing activities. In a sense, the overarching intervention aim is to ensure the real economy is not impacted negatively,” said Yeah.