Malaysian central bank calls for higher forex inflows to boost ‘undervalued’ ringgit

The ringgit continues to be battered, a week after falling to a 26-year low against the US dollar
It ‘ought to be traded higher’, the central bank chief said in an appeal to investors, government-owned enterprises and private firms to help shore up the currency

Malaysia

Joseph Sipalan

Published: 1:41pm, 27 Feb 2024

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Malaysia’s central bank on Tuesday said it had urged investors, government-owned enterprises and private corporations to help shore up the value of its plunging ringgit, which continues to be battered a week after falling to a 26-year low against the US dollar.

The currency, which ended 2023 as the second worst-performing in Asia, triggered alarm last week when it fell to its lowest since the Asian financial crisis of the late 1990s, trading at 4.7965 against the US dollar, according to Bloomberg data.

Bank Negara Malaysia (BNM) said it had stepped up engagements with government-linked investment corporations and companies, private corporations and investors “to encourage continuous inflows to the foreign exchange market”.

“The ringgit is undervalued. Given Malaysia’s positive economic fundamentals and prospects, the ringgit ought to be traded higher,” BNM Governor Abdul Rasheed Ghaffour said in a statement.

A motorcyclist rides past Malaysia’s central bank building in Kuala Lumpur on June 6, 2018. Photo: AP

The ringgit recovered slightly over this week, opening at 4.7775 against the dollar in morning trade on Tuesday, according to a Bernama report, but still hovering close to its all-time low of 4.885 in January 1998 at the height of the financial crisis.

The central bank and analysts had said the ringgit’s weakness was largely due to expectations of a policy change by the US Federal Reserve – which has prompted dollar inflows – and the far-reaching malaise suffered by China’s economy.

The ringgit has struggled to regain solid footing as Malaysia exited the Covid-19 pandemic, ranking only second behind the Japanese yen as Asia’s worst-performing currency over the past two years.

The Malaysian currency lost about 6 per cent against the US dollar as of last November, according to BNM data, faring worse than the 5.4 per cent decline over the whole of 2022.

It traded lower against a basket of major currencies on Tuesday, easing against the yen, British pound and euro.

The ringgit was also down against most of its Southeast Asian counterparts. Malaysia’s currency gained slightly against the baht, which has been weighed down by Thailand’s sluggish growth of 1.9 per cent in 2023.

Malaysian Prime Minister Anwar Ibrahim on Friday acknowledged that the ringgit’s performance was “concerning”, but added that the country was better prepared to deal with currency volatility compared with the crisis of the late 1990s.

Malaysia’s government expects the economy to grow by 4-5 per cent in 2024, accelerating from the weaker-than-expected 3.7 per cent pace for last year.

A weak ringgit is generally seen as a positive for Malaysia’s exports – an important contributor to the trade-reliant nation’s GDP – but also likely to cause a surge in inflation as businesses pass on higher costs of imported raw materials to consumers.