KUALA LUMPUR (Aug 18): Bank Negara Malaysia (BNM) observed that conversion of foreign proceeds earned by exporters had picked up to 69% recently, after a reduction in the second quarter of this year (2Q2023).
“What we observed was earlier [this year], perhaps in the second quarter, some exporters reduced their conversion but it has picked up again towards end of the first half [of 2023]. The latest data that we did observe when it comes to exporters' conversion was about 69%,” said assistant governor Adnan Zaylani Mohamad Zahid here at the central bank’s 2Q2023 gross domestic product briefing.
“Our position on this is it is pretty much a business decision that exporters will have to make, they do have liabilities and obligations to meet in local currency, so they will convert whatever is necessary, and aside from that, they do have other obligations in foreign currencies,” he added.
Malaysian exporters are required to repatriate their foreign earnings back into the country within six months, but they are not required to convert it back to ringgit.
“They [exporters] can still hold it in foreign currencies if they so wish to,” said Adnan when asked about BNM's stance on calls for exporters to convert their foreign earnings into local currency.
Adnan Zaylani said clearer support for regional currencies, including the ringgit, will only crystalise upon peaking of the US dollar and improvement in China's economy.
“We know that the ringgit is pretty much influenced by global factors, and we do see the current situation, the divergence between the Chinese yuan and US dollar, whereas the US interest rate could be staying quite firm and [China] lowering their interest rate,” he said.
“While this is expected to have a temporary effect on the ringgit, I think the US dollar does appear to [reach] its peak at some time in the near future. The China economy, the intent [by the Chinese government] is pretty strong to provide that support.
“If these few factors turn around, it would be clearer as a support for regional currencies, so these are the dominant factors that continue to influence the ringgit,” he added.
Ringgit depreciated 4.7% year-to-date
BNM governor Datuk Shaik Abdul Rasheed Ghaffour said with investors’ expectations of further aggressive monetary policy tightening in the US and other advanced economies throughout the first half of the year, the ringgit had depreciated by 4.7% against the US dollar year-to-date.
Nonetheless, Abdul Rasheed noted that the local currency has appreciated 1.1% against the greenback since July 1 “amid overall market expectations that the monetary policy tightening campaign in the US is nearing its end”.
“BNM will continue to closely monitor global and financial market conditions and ensure market adjustment remains orderly. Towards this end, BNM's presence in the foreign market is to stem currency movements that are deemed excessive.
“Thus, BNM will continue to manage risk against any heightened financial market volatility. I won’t say it is an intervention. Basically, our presence in the forex market is actually to ensure an orderly market and also to ensure no excessive volatility, that is the main objective,” he explained.
Adnan also updated that Malaysia’s currency market has grown “quite tremendously”, with trading volume of the US dollar and ringgit alone and ranging between US$15 billion and RM17 billion on a daily basis.
“BNM only steps in in cases where there is basically a reduction in liquidity, sometimes when there is a strong sentiment one way or the other. In periods of high uncertainty or [when] there is a lot of volatility, often we can find market participants are more cautious, that is when BNM steps in to provide the assurance,” he said.
Meanwhile, BNM deputy governor Datuk Marzunisham Omar said that despite the ongoing slower global trade, there are already tentative signs that Malaysia’s electrical and electronic exports are recording positive growth in June and July.
“These are something that we hope will continue. There are temporary factors that we discussed, that we anticipate that these factors, like plant maintenance and weather, will gradually dissipate as we move forward into the second half of the year. In short, we are cautious, but we hope exports will start to recover moving forward,” he said.
In July, the Department of Statistics Malaysia reported that total trade fell 16.3% to RM222.1 billion in June 2023 from RM265.4 billion a year earlier, while exports also posted a 14.1% decrease and imports declined 18.9%.