The ringgit has been unfortunate, unfairly valued against the US dollar -BNM

KUALA LUMPUR: Continuing uncertainties over China’s economic growth prospects and the recent geopolitical crisis have increased demand for US dollars as a safe haven, said Bank Negara Malaysia (BNM) deputy governor Adnan Zaylani Mohamad Zahid. .

“There has been a lot of talk about the movement of the ringgit against the US dollar. Unfortunately, many people see and use this as an indicator or barometer of our situation.

“This is an unfair assessment as it ignores the overall performance of our currency, the strength and fundamentals of our economy as well as future prospects,” said Adnan Zaylani as a panelist at the National Economic Forum (NEF) 2024 organized by the National Chamber of Commerce. and Industry (NCCIM) here today.

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He said the ringgit has been trading stronger against the Japanese yen, Taiwan dollar and Korean won since the start of 2022. It has weakened slightly against the Chinese renminbi, Indonesian rupiah and the Korean rupiah. Indian.

“This confirms that we are facing a cycle of US dollar strengthening, a US dollar story and not a ringgit weakness story.

“From a growth perspective, Malaysia continues to record expansion and increasing economic activity accompanied by low and stable inflation,” he said.

Adnan Zaylani said that while the ringgit should reflect the country’s fundamentals in the long term, in the short term it will face headwinds from the strength of the US dollar.

“Higher and tighter US interest rates will continue for some time. This has influenced the behavior of investors, businesses, exporters, importers and the public. For example, there is greater interest in investing in foreign currency assets.

“Furthermore, exporters may prefer to hold foreign currencies while importers favor their purchases and some companies are even accelerating the repayment of their foreign currency debts,” he said.

This sets the tone for a weaker ringgit, further strengthening the trend, he said.

Excessive depreciation is costly for companies that rely more on imports.

“It also perpetuates negative sentiment toward our economy and markets,” he said.

Explaining how BNM will break this trend, he said the central bank must first deploy its main tools to preserve stability and prevent excessive depreciation.

“We intervened – by selling foreign currencies and buying ringgit – and we have been doing that for some time,” he said.

Second, BNM works with government-linked investment companies (GLICs) and government-linked companies (GLCs) to repatriate and convert their foreign earnings.

Third, it works with businesses and exporters to repatriate their income and profits and to manage their overseas investments and foreign exchange balances, he said.

For example, he said many companies find it more expedient to keep their foreign currency balances overseas to avoid the overseas reinvestment approval process.

He said BNM is working on an initiative to expedite a pre-approval framework for companies converting their foreign exchange funds into ringgit to enable them to subsequently reinvest overseas.

The response was encouraging, with some immediately converting their foreign funds into ringgit, he said.

He said the global interest rate would eventually “turn around”, and the outlook for the ringgit “looked strong”, he said.

Meanwhile, Adnan Zaylani said some risk of inflation could arise from the government’s rationalization of subsidies. She expects the risks to be temporary if they materialize.

“More importantly, the streamlining of subsidies itself will be a big step forward. With the tax reforms already undertaken by the government, this will further consolidate the budget deficit.

“The short-term outlook is strong as we are already seeing a recovery in our exports and foreign trade, strengthening tourist arrivals and continued progress in numerous multi-year investment projects led by both the public and private,” said the deputy governor. .

He also said that the National Energy Transition Roadmap (NETR) and the New Industrial Master Plan 2030 (NIMP 2030) will guide the country in the long term.

Since 2010, foreign direct investment (FDI) from non-residents has consistently generated better returns than residents’ investments abroad, it said.

Over the past two years, the average return on FDI stood at 11.6 percent, compared to 7.5 percent for residents’ investments abroad, he said.

“The numbers speak for themselves: it makes business sense to focus on investing your capital locally,” he said. – Bernama