Thursday 28 Mar 2024
By
main news image

KUALA LUMPUR (Nov 11): Malaysia remains among the seven economies on the US Treasury Department’s “monitoring list” of major trading partners that merit close attention to their currency practices and macroeconomic policies.

In its semiannual Report to Congress on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the US released on Thursday (Nov 10), the Treasury said the other six nations were: China, Japan, South Korea, Germany, Singapore, and Taiwan.

Commenting on Malaysia, the Treasury said the country has established a track record of two-way intervention in the foreign exchange market in recent years.

“Malaysia does not publish data on its foreign exchange intervention; however, the authorities have conveyed credibly to Treasury that net sales of foreign exchange in the four quarters through June 2022 were US$6.7 billion or 1.7% of GDP.

“That is, the intervention is in the direction to strengthen Malaysia’s currency,” it said.

According to internal Treasury estimates, net sales accelerated over the first half of the year amid net portfolio outflows in the second quarter of 2022 and other depreciation pressures on the ringgit.

The report said Malaysia’s foreign exchange reserves stood at around US$95 billion at end-September 2022, down US$10 billion compared to end-2021.

It said reserves remain broadly adequate according to standard adequacy metrics, including that of the International Monetary Fund.

The department said that like many regional peer currencies, the ringgit has faced downward pressure last year and into 2022.

It said on net, the ringgit has depreciated 9.9% against the US dollar since the beginning of the year through end-September.

“Despite this slide against the dollar, the ringgit has appreciated 1.8% on a nominal effective basis year-to-date through September as the ringgit has outperformed the currencies of some other major trading partners, including the yen, won, and euro.

“Over the same period, the ringgit has appreciated by only 0.2% on a real effective basis as inflation in Malaysia has been lower, on average, than in its trading partners, though inflation differentials have narrowed in recent months,” it said.

The Treasury said Malaysian authorities should aim for gradual and steady fiscal consolidation to contain public debt and rebuild fiscal buffers, while preserving space to upgrade the social protection system and bolster key investments (e.g., climate resilience and energy transition).

It said that as part of those efforts, the authorities should replace the largely untargeted fuel subsidies with targeted support measures, which would allow the authorities to continue providing support for vulnerable populations while reducing Malaysia’s elevated subsidies bill.

“A more effective social protection system along with targeted public investments would help foster inclusive and sustainable growth while also supporting external rebalancing.

“The authorities should continue to allow the exchange rate to move to reflect economic fundamentals and limit foreign exchange intervention to circumstances of disorderly market conditions, while avoiding excessive accumulation of reserves,” it said.

      Print
      Text Size
      Share