KUALA LUMPUR (Feb 29): The ringgit is anticipated to recover and appreciate to 4.50 against the US dollar by the second half of 2024, according to Finance Minister II Datuk Seri Amir Hamzah Azizan, citing banking analysis.
Amir attributed the recent depreciation of the local note primarily to the strengthening of the greenback, and uncertainties surrounding China's economic growth, which affected other regional currencies.
"As of Feb 28, the ringgit had depreciated by 3.5% against the US dollar, aligning with regional currencies such as the Japanese yen (-6.3%), the Thai baht (-4.7%), and the South Korean won (-3.3%)," Amir said during an oral question-and-answer session in the Dewan Rakyat on Thursday.
Additionally, the former chief executive officer of the Employees Provident Fund (EPF) highlighted that the US Federal Reserve's aggressive interest rate hikes, resulting in a 525-basis-point increase over 16 months, had impacted global interest rates.
"The increase in Malaysia's overnight policy rate (OPR) was only 125 basis points, from 1.75% to 3%, for the same period. If the OPR is increased to strengthen the ringgit, the national economy will be affected, and various parties will be burdened, with borrowers having to pay higher interest rates," Amir added.
Nevertheless, he reassured that the government and Bank Negara Malaysia are taking measures to address the situation, concentrating on maintaining financial stability, orderly foreign exchange markets, and encouraging domestic use of the ringgit.
"Based on data, we feel the ringgit will continue to strengthen and is expected to, according to banking analysis, strengthen to 4.50 before the end of this year," he said.
These efforts involve monitoring export proceeds, coordinating with government-linked companies and government-linked investment companies to encourage them to repatriate foreign investment income, and convert that income into ringgit more consistently, controlling overseas investments, and urging Malaysians to support local products and investments to strengthen the local currency.
Responding to a supplementary question from Lim Guan Eng (Pakatan Harapan-Bagan), Amir affirmed that the government is committed to ensuring the effectiveness of all efforts, without resorting to measures such as pegging the ringgit to the US dollar, or implementing foreign exchange controls, similar to actions taken during the Asian Financial Crisis.
Amir also highlighted that given Malaysia's anticipated economic growth of 4% to 5% in 2024, market analysts observed that the ringgit currently stands at 8% to 10% below its fair value.
The minister, who has described himself as a technocrat instead of a politician, emphasised that foreign investors are exhibiting greater confidence in the government's efforts to strengthen the economy, evident from the performance of the FBM KLCI, the local benchmark index, which had increased by 7.2% on foreign investors' capital inflow.
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