Bank Negara to intervene in forex market to stem excessive currency movements

KUALA LUMPUR: Bank Negara Malaysia (BNM) will intervene in the foreign exchange market to stabilise the ringgit currency to stem currency movements that are deemed excessive, according to assistant governor Adnan Zaylani.

The ringgit is trading near a seven-month low. The local unit is quoted at 4.6663, up 0.2% against the US dollar at 5.46pm.

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“As per its statutory mandate, BNM will intervene in the foreign exchange market to stem currency movements that are deemed excessive.

“While the value of the ringgit will continue to remain market-determined, BNM expects that ongoing measures by the Government to further strengthen the economy will help to ensure that the ringgit better reflects the country’s fundamentals,” Adnan said in a statement.

“While the ringgit continues to be affected by global developments, Malaysia’s expected economic growth in the range of 4.0% – 5.0% as well as the structural reforms and fiscal consolidation efforts by the Government, are supporting factors for the ringgit,” he said.

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The central bank said the extent of the recent depreciation of the ringgit is not reflective of Malaysia’s economic fundamentals and that recent volatility was also disproportionately higher than historic movements.

It noted the external environment continued to be the main driver of the ringgit’s performance, particularly the evolving market expectations of higher terminal interest rates in most major economies, which in turn, raises risks of a possible marked slowdown in the global economy.

At the same time, the People’s Bank of China (PBOC) has lowered interest rates amidst signs that China’s post-Covid economic recovery is losing its momentum. The ringgit, along with other regional currencies, has been weighed down by these developments.

Against the backdrop of the US dollar strength, the Financial Markets Committee (FMC) observed that the extent of the recent depreciation of the ringgit is not reflective of Malaysia’s economic fundamentals.

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The FMC viewed recent movements in the ringgit exchange rate to be excessive considering the following factors:

i. After recording one of the highest gross domestic product (GDP) growth rates in the world in 2022, Malaysia’s growth momentum is expected to continue in 2023 albeit at a more moderate level, supported by continued domestic investment activity, improving labour market conditions and higher tourism activities. Malaysia’s broad and diversified economic structure is expected to cushion the impact of slowing global growth.

ii. While the strong correlation between the ringgit and the renminbi can be explained by the significant trading relationship between Malaysia and China, it is important to note that Malaysia’s external sector remains diversified, both in terms of product segments as well as in terms of trading partners. The FMC observed that this should serve to moderate the close co-movement between the ringgit and the renminbi.

iii. The FMC noted that while the ringgit volatility has risen consistently with those of regional currencies, the extent of the volatility increases has been disproportionately higher and deviating from historical relative movements. Notwithstanding this, the onshore financial markets remain on solid footing. ringgit forex volatility remains the lowest among regional peers. This was underpinned by a healthy increase in daily forex turnover volumes over the past few years, averaging US$15.1bil year-to-date.

iv. In the bond market, non-resident holdings of Malaysian Government Securities (MGS) bonds have remained close to the longer-term average figure of 23.5%. Importantly, MGS continues to offer positive real yield and FMC members noted sustained interest among foreign investors in the Malaysian bond market.

Financial Markets Association of Malaysia president Chu Kok Wei said: “Financial markets in Malaysia continues to operate in an orderly manner and remains conducive to support our clients’ needs. We welcome BNM’s guidance on the ringgit and recent market developments. We will remain supportive of its efforts in domestic markets.”

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Bank Negara , Ringgit , FMC , BNM


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