Tuesday 03 Oct 2023
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KUALA LUMPUR (May 28): The country's strong economic fundamentals and prudent management of the ringgit are expected to strengthen the local note, which has only been dragged by temporary factors, according to Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz.

As at the time of writing, the ringgit was trading at 4.3783 against the US dollar, and at 3.1974 against the Singapore dollar. It weakened past the 3.20 level against the Singapore dollar for the first time earlier this week.

These temporary factors include expectations for the global monetary situation, with continued tightening of global liquidity that has alarmed the international investing community. "As a result, they have reallocated funds to higher-yielding assets denominated in US dollars. This has led to the depreciation of various global currencies, including the ringgit," Tengku Zafrul said in a statement.

Another contributing factor, the minister noted, is expectations that China's growth prospects will deteriorate this year due to movement restrictions in its major cities, which have not only weakened the yen but also impacted the ringgit because of the significant trade volume between China and Malaysia, with exports to China accounting for 10.7% of Malaysia's gross domestic product (GDP), compared with 2.1% for Indonesia and 1.3% for Thailand.

The volatile global geopolitical tensions have also put pressure on global economies. "This is reflected in the value of the VIX, or the investor 'fear index', which has increased to 25.7 points (Saturday, May 28) from the previous average of 18 points. This has also caused investors to flock to 'save-haven assets' (such as gold and the US dollar), putting downward pressure on various currencies, including the ringgit," he said.

Nevertheless, all these factors are "temporary", said Tengku Zafrul, who gave his assurance that the ringgit's value is expected to remain stable and then strengthen as Bank Negara Malaysia (BNM) actively manages the local note to ensure that fluctuations are orderly and not excessive, allowing the economic sector to make investment and expenditure plans based on a more stable value of the currency.

"What is more important are our economy's strong fundamentals, such as the country's continued economic growth prospects. The ringgit will continue to strengthen after the economy expanded by 3.6% in the fourth quarter of 2021 and 5% in the first quarter of 2022. This is also reflected in the most recent IMF (International Monetary Fund) analysis, which projects a 5.75% GDP growth for Malaysia in 2022, driven by pent-up domestic demand and continued strong external demand. At the same time, expectations of a current account surplus mean that demand for the ringgit will remain strong," Tengku Zafrul said. 

Analysts, he noted, also remain optimistic about the prospect of a strong recovery of the ringgit in the near future. 

"Moving forward, the MoF (Ministry of Finance) is optimistic about the country's economic growth prospects. Malaysia's GDP is expected to grow between 5.3% and 6.3% in 2022, contributing to the ringgit's stability. The MoF and BNM will continue to monitor both financial and non-financial risks to the nation's economy in order to maintain economic stability and the well-being of all Malaysians," he added.

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