KUALA LUMPUR: Bank Negara Malaysia (BNM) emphasised that structural reforms and policies must take precedence over excessive reliance on international reserves to manage currency fluctuations.
In its Annual Report 2024, released today, BNM said that the movements of the ringgit, like that of most currencies, would be driven by both short-term fluctuations and long-term economic fundamentals.
It said the choice of policy responses to preserve orderly conditions in the foreign exchange market will depend on the underlying drivers of exchange rate movements.
"Often, a multi-pronged policy toolkit is deployed to enhance policy efficacy and to avoid overburdening of any single tool,” it added.
The central bank said BNM’s foreign exchange intervention (FXI) is useful in dampening short-term excessive volatility caused by global shocks.
"However, relying too heavily on international reserves to counter long-term drivers rooted in fundamental factors may not be the appropriate strategy,” it said.
BNM said structural reforms and policies must take centre stage, whether through further financial market developments to build resilience against the negative impacts of ringgit volatility or through policies aimed at strengthening productivity and competitiveness, hence improving economic growth prospects and fiscal sustainability.
The central bank said it continues to collaborate closely with the government on multiple fronts to maintain confidence in the ringgit and promote orderly conditions for households and businesses to manage their foreign exchange exposure.
"This includes supporting the effective implementation of structural reforms, engaging with the global investment community to highlight their positive impacts, and leveraging its policy toolkit to ensure favourable domestic financial conditions to enable reforms to take place,” it said.
The central bank said that a collective effort, spanning policymakers, businesses, and society, is critical to realising the full potential of these reforms.
"This unified approach holds the key to unlocking sustainable growth, ensuring the long-term resilience and appreciation of the ringgit,” it added. - Bernama
