KUALA LUMPUR (Oct 3): Bank Negara Malaysia (BNM) Governor Tan Sri Nor Shamsiah Mohd Yunus told Corporate Malaysia on Monday (Oct 3) that "there is no need to hoard [the US dollar] or frontload US dollar purchases" at a time when the ringgit's current depreciation is due to the strength of the US dollar.
Nor Shamsiah said BNM will ensure that Malaysia's onshore foreign exchange market remains liquid, so businesses can be assured that all their foreign currency needs can be efficiently fulfilled.
"While the current depreciation of the ringgit is due to the strength of the US dollar, Corporate Malaysia can help in maintaining orderly market conditions by taking actions which do not exacerbate the situation.
"Corporates and domestic financial institutions should also be prudent in managing their balance sheets. This includes to avoid creating new vulnerabilities, especially from foreign currency debt and financial imbalances, as well as hedging their risks appropriately," Nor Shamsiah said in her speech at the Khazanah Megatrends Forum 2022 here.
At the time of writing, the ringgit weakened to 4.6495 against a strengthening US dollar as foreign exchange markets took their cue from higher US interest rate prospects to fight inflation, and as investors evaluated the possibility of an escalation of the Russia-Ukraine war.
Global inflation, interest rate hike and Russia-Ukraine war sentiments had led to a depreciation in world currencies including the ringgit against a strengthening US dollar, which saw higher demand from investors seeking higher returns from US interest rate hikes and as they sought safety in the US dollar, which is deemed a haven in times of geopolitical uncertainties.
The exchange rate so far on Monday was between 4.6375 and 4.6512, and over the last year, the ringgit was transacted at between 4.1392 and 4.6512 against the US dollar.
Nor Shamsiah said businesses and investors that benefit from a ringgit depreciation should also take advantage of the weaker ringgit.
Citing exporters as an example, she said exporters can increase production to increase global sales of their products while companies with a global presence can take advantage of the weaker ringgit to reinvest their money in Malaysia.
"On a broader note, as an open economy, the policy priority for Malaysia is to sustain economic growth within an environment of price stability and to further strengthen economic fundamentals through the necessary reforms.
"This will provide more enduring support for the ringgit rather than resorting to capital controls or re-pegging as some have suggested, which would create more harm to the economy," she said.
Nor Shamsiah said a flexible exchange rate continues to be relevant for Malaysia as it allows the country to absorb external shocks.
She said a flexible exchange rate also allows BNM's Monetary Policy Committee to set the overnight policy rate based on Malaysia’s domestic economic growth and inflation outlook, rather than be constrained by monetary policies of other advanced economies.
"It is also important that we preserve orderly financial market conditions. This means avoiding large swings in the exchange rate, so as not to disrupt economic activities.
"This will enable the exchange rate to serve as a shock absorber — not a shock amplifier — to the domestic economy. While BNM does not target any level of exchange rate, we will closely monitor and ensure orderly market conditions," she said.
Despite heightened volatility in global financial markets, Malaysia's daily onshore foreign exchange transaction volume and bond market activity remain healthy, according to her.
"Reforms to deepen the domestic bond market have helped to strengthen the fundamentals of the economy by enabling businesses to meet their funding needs more effectively," she said.