KUALA LUMPUR (March 20): Bank Negara Malaysia (BNM) said on Wednesday it found rising foreign currency holdings among Malaysian corporates, exporters and importers, resulting in an imbalance that weakened the ringgit in the short run.

On top of the call to state-owned companies, BNM governor Datuk Shaik Abdul Rasheed Ghaffour “strongly urged” Malaysian businesses from all sectors to repatriate their overseas investment income and convert export proceeds back to ringgit to support the central bank's efforts to manage short-term pressure on the local currency.

"Specifically, we observed an increasing trend by certain exporters taking time to convert their export proceeds, importers frontloading the purchases of foreign currency, and corporates not converting their overseas investment income,” he said during a press conference in conjunction with the release of the central bank’s annual report. "And this behaviour has contributed to the imbalances in the forex market.”

As part of the central bank's concerted measures to manage short-term pressure on the ringgit, BNM in its monetary policy statement earlier this month said it is taking coordinated actions with the government to encourage repatriation and conversion of foreign investment income by government-linked companies (GLCs) and government-linked investment companies (GLICs).

Abdul Rasheed on Wednesday disclosed that on top of engaging with GLCs and GLICs, BNM has also stepped up discussions with corporates and investors, monitor conversion behaviour of domestic exporters and importers, and engage them on any unusual trends that are observed.

While he did not reveal which GLCs and GLICs were involved in the efforts and the volume of funds that have been repatriated, Abdul Rasheed said the institutions have been able to bring back funds "quite consistently on a daily basis".

Further, he also assured that this action would not negatively affect the investment portfolios of the GLICs as only funds from realised income are repatriated.

"We have seen positive outcomes from this action, flows are coming in and we saw immediate impact on market flows since February, and there is increased demand for ringgit," Abdul Rasheed said.

"We have also seen positive responses from the forex traders. And most of them agreed that ringgit is undervalued, and they appear more willing to hold on to their ringgit positions for longer," he added.

During his presentation, Abdul Rasheed insisted that the ringgit is undervalued and that the decline in the value of the ringgit is temporary and due to external factors.

The ringgit, which was the second worst performing currency in 2023, experienced depreciation pressures mainly due to the aggressive monetary policy tightening in advanced economies, along with other regional currencies.

The depreciation was exacerbated further by the economic slowdown in China and geopolitical tensions in the Middle East.

Since the beginning of 2024, the ringgit has depreciated from RM4.60 to reach its 26-year low of RM4.80 against the US dollar on Feb 20, a range last seen in 1998 at the peak of the Asian financial crisis. However, the ringgit has recovered to RM4.70 against the US dollar as of March 15.

Don't miss the other highlights of the BNM Annual Report 2023. Read the articles here.