In its Quarterly Bulletin, released on Wednesday, BNM said external spillovers would continue to affect emerging economies in ways that are both expected and unexpected.
“The state of ongoing uncertainties within global policies, economic, political and financial market developments will lead to periods of heightened volatility.
“In such a case, it is important for emerging economies to recognise their autonomy in the conduct of policies to address issues that are unique to the domestic environment, and policies can no longer be constrained to conventional tenets of policy making but instead, new and untested strategies should be considered,” it said.
The central bank added that Malaysia implemented a policy strategy that focused mainly on financial market development but included bold ‘market-correcting' and prudential measures to deal with the country's unique challenges.
“The policy combination in the series of measures introduced by the Financial Markets Committee (FMC) has been crucial to Malaysia's success in managing financial market volatility.
“As a result, domestic financial market conditions improved substantially,” it said.
The FMC introduced measures to further liberalise the domestic financial market, including allowing for better market access, hedging flexibilities and the introduction of new financial market instruments.
Where a larger degree of firmness was required, such as in addressing the issues of offshore ringgit speculative activities, the FMC reinforced the non-facilitation of non-deliverable forward rule.
“Export conversion requirements were put in place to address the imbalances within the domestic foreign exchange market but with sufficient flexibilities accorded to domestic exporters,” BNM said.
These measures helped reduce volatility in the ringgit exchange rate while speculative pressures also subsided.
Following this, outflows from short-term non-resident investors improved the composition of non-resident holdings in the domestic financial markets towards more stable and sustainable longer term investors.
The improved domestic financial market conditions, which also coincided with Malaysia's stronger-than-expected economic performance, facilitated the appreciation of the ringgit in 2017 to better reflect underlying fundamentals when global financial market conditions improved.
“More importantly, the orderly functioning of the domestic financial market has continued to support Malaysia's economic growth,” BNM added. - Bernama