FMC concurs ringgit is undervalued

FMC chairman and Bank Negara Malaysia deputy governor Adnan Zaylani

KUALA LUMPUR: The Financial Markets Committee (FMC) at Bank Negara concurred with the assessment that the current level of the ringgit is deemed undervalued, particularly as Malaysia's economic fundamentals remain strong, and the economic prospects are positive.

Earlier this week, Bank Negara governor acknowledged that the ringgit is undervalued.

The FMC convened today to discuss recent developments in the ringgit foreign exchange market.

“The FMC welcomes Finance Minister II’s statement on ringgit especially on the intensified coordination between the government and Bank Negara to encourage more inflows into the market,” FMC said in a statement.

This includes stepping up coordination with government-linked companies (GLCs) and government-linked investment companies (GLICs) to encourage them to repatriate foreign investment income and convert that income into ringgit more consistently, playing their roles to support the ringgit amidst challenging global environment.

“The meeting noted that there has been an immediate impact on market flows and increased market interest in buying ringgit. The potential for further conversion to ringgit could be high, given the prevailing level of foreign currency balances onshore. The FMC noted that Bank Negara will enhance engagements with corporates and investors to further encourage conversions and strengthen market sentiment on the ringgit,” it said.

Additionally, the FMC also noted global investors’ continued confidence in the Malaysian financial market.

On a year-to-date (YTD) basis, the KLCI rose 6.7%, supported by US$422mil inflows from non-resident investors. Long-term government bond holdings by non-residents continued to be stable at around 22% while the FX market remains vibrant with a healthy daily turnover of US$15.3bil.

Standard Chartered Bank Malaysia treasury head Sylvia Wong said: “We have seen balanced flows from both corporates and institutional investors as the ringgit continues to be traded in an orderly manner. External factors, namely US rate hike expectations, continue to dictate regional FX movements, including the ringgit. Once US rate cut visibility improves, bilateral exchange rates valuation against the US dollar should improve.”

Meanwhile, Allianz Malaysia Bhd chief investment officer Wong Siew Lin said the positive equity performance YTD has not been observed for a while and the rally has been evidently broad-based in nature. In addition, the main market has outperformed the small-caps this year.

FMC chairman and Bank Negara Malaysia deputy governor Adnan Zaylani said: “It was a good and informative meeting. Based on the insights shared, the prospect for ringgit to strengthen from here is strong.”

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