by Byun Seonjin
Published 29 Feb.2024 16:32(KST)
The value of the Malaysian Ringgit has fallen to its lowest level in 26 years. As the downward trend continues, local financial authorities have hinted at the possibility of intervening in the foreign exchange market.
On the 29th (local time), according to Bloomberg, Amir Hamzah Azizan, Malaysia's Second Finance Minister, responded to questions about the currency depreciation in parliament that day, stating, “The Central Bank of Malaysia, Bank Negara Malaysia, is ready to sell US dollars to limit the excessive weakening of the Ringgit.” He added, “The government takes the Ringgit's value seriously and is committed to defending and strengthening it.” However, he did not specify when the US dollars from foreign reserves would be sold. As of mid-month, Malaysia holds approximately $115 billion in foreign exchange reserves.
The Ringgit exchange rate against the US dollar is at its lowest level since the 1998 Asian financial crisis. According to Investing.com, the dollar-to-Ringgit rate was 4.7690 Ringgit per dollar the previous day, marking an additional 3.5% decline this year. The main factors behind the Ringgit's depreciation include external influences such as the US Federal Reserve's interest rate hikes and the economic slowdown in China, Malaysia's major trading partner.
The Ringgit's weakness is expected to cause a rise in prices of consumer goods, which have a high import ratio in Malaysia, potentially triggering inflation. This also complicates the monetary policy decisions of Bank Negara Malaysia, which is considering the timing of interest rate cuts. Since raising the benchmark interest rate to 3.0% in May last year, Bank Negara has kept rates unchanged in four consecutive meetings.
Concerns about further Ringgit depreciation have also emerged. State Street Global Advisors, Oversea-Chinese Banking Corporation (OCBC), and Mitsubishi UFJ Trust and Banking Corporation anticipate that authorities will intervene if the dollar-to-Ringgit rate falls to 4.8 Ringgit per dollar.
Malaysian authorities are working to quell market concerns over the Ringgit's decline. They point to strong economic fundamentals and improved economic growth this year as reasons the currency could strengthen again. Malaysia's GDP growth rate last year was 3.7%, significantly slower than the previous year's 8.7%, which was the highest growth in 22 years. However, authorities forecast that this year's growth rate could improve to as much as 5%. Analysts surveyed by Bloomberg expect the Ringgit to appreciate to 4.5 Ringgit per dollar by the end of the year.
Abdul Rashid Ghaffour, Governor of Bank Negara Malaysia, said on the 27th, “Considering the positive economic outlook, it is appropriate for the Ringgit to trade higher.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.