Businesses to support national ringgit stability
FMM urges members to take heed of call by Bank Negara for companies to be part of the whole-of nation approach
The Federation of Malaysian Manufacturers (FMM) supports the initiatives undertaken by Bank Negara Malaysia (BNM) to manage the short-term pressure on the ringgit including their call for support from corporates and investors to ensure more inflows into the foreign exchange (FX) markets, said its president Tan Sri Soh Thian Lai (pix).
He added that FMM has urged its members to take heed of the call by BNM for businesses to be part of the whole-of nation approach needed to ensure the stability of the ringgit.
BNM in releasing the Annual Report 2023, Economic and Monetary Review 2023 and Financial Stability Review for Second Half 2023 on March 20 stressed that despite Malaysia’s strong fundamentals and positive growth prospects for 2024 (the economy is projected to grow between 4% and 5% in 2024 while headline inflation is expected to average between 2% and 3.5% amid contained cost pressures from easing global supply conditions), the current ringgit level remains undervalued.
It was explained that greater policy rate increases in other countries relative to Malaysia is one of the main factors causing the depreciation of the ringgit against other currencies.
BNM Governor Datuk Abdul Rasheed Abdul Ghaffour was quoted saying that the decline in the value of the ringgit is temporary and due to external factors and that looking ahead, financial markets expect the ringgit to appreciate further into 2024 and continue on an appreciating trend as the effect of global factors subside.
Different factors can affect the movements of ringgit over the short and long-term. In the short-term, ringgit performance is mainly affected by cyclical factors including interest rate differentials, fluctuations in the global economic conditions, and changing investor sentiments. However, in the long-term, ringgit exchange rates are more anchored by domestic fundamental determinants.
In the longer term, structural reforms which can help to improve Malaysia’s economic prospects will also provide more enduring support to the ringgit. Steady growth and stabilising global cost conditions will provide a window of opportunity to implement key reforms such as implementation of the various master plans; labour market reforms; strengthening social protection; and commitment to fiscal reforms.
Soh said that BNM during an engagement session with chambers of commerce, business councils, trade associations and CEOs of Malaysian companies on March 22 had stressed that a whole-of nation approach is needed to ensure the stability of the ringgit amidst the on going efforts being undertaken by BNM.
BNM in its call-to-action to the business community, stressed on the following key actions which FMM has conveyed to its members via a members’ advisory, namely to adopt a “Malaysia First” attitude, that is to prioritise and realise investment opportunities domestically; choose domestic goods, services and recreation; manage investment activities that minimise outflows; defer any new investment abroad; repatriate and convert realised investment income earned abroad in a more timely and consistent manner and hedge any new and large investments abroad.
FMM had also asked its members to manage trade activities in a prudent manner by repatriate and convert export proceeds into ringgit in a timely manner; where possible, utilise local currency settlement facilities to minimise dependency on USD for trade settlement purposes and refrain from holding back conversion and frontloading import payments beyond what is required for business needs.
It is hoped that with the collective action by BNM to ensure sufficient liquidity in the domestic FX market and dynamic management of monetary operations and the support from the business community, the ringgit will strengthen in the coming months.