KUALA LUMPUR: The ringgit is expected to perform better in the long term in tandem with the growth of the domestic economy and on the back of various measures undertaken to ensure that the currency remains stable and supported.
“Given the strength of our economy, the ringgit has to perform and we expect it to perform to reflect the strength of our fundamentals,” said Bank Negara deputy governor Adnan Zaylani Mohamad Zahid.
“If you look at where the ringgit’s performance was when we started this and today, the local note has performed and appreciated against the US dollar by 1.2% probably by now,” he added.
Adnan Zaylani highlighted that the local currency has also strengthened up to 2% against the Singapore dollar and 5% against other regional currencies.
However, he pointed out that since the US Federal Reserve (Fed) started increasing the interest rate, the ringgit has weakened against some other currencies for the last two years.
“Therefore, it has to be put into an overall context that drives the performance. Other factors were the current geopolitical issue that continues to create uncertainties and China’s growth prospect,” he said.
Moving forward, Adnan Zaylani said there is an expectation for the Fed to reduce interest rates this year and this would be more favourable for the local currency.
Meanwhile, he added that one of the measures that have yielded positive results in the performance of the ringgit was engaging corporate companies and government-linked investment funds to repatriate their proceeds back to the domestic market.
“We have been engaging corporates, importers and exporters in terms of bringing back flows into the market.
“We have also worked very closely, back in February, with our government linked investment companies including the Employees Provident Fund to bring back their foreign investment income to convert to ringgit.
“These two steps have been able to yield us a significant benefit, and have helped stabilise and strengthen the ringgit vis-a-vis the regional trading partners.
“We are also looking at various measures to ensure the ringgit remains stable and supported in this challenging year,” Adnan Zaylani said during the ringgit, bonds, and equity markets panel at the Bank Negara’s Sasana Symposium 2024 here yesterday.
To date, he said some of these corporations have repatriated and converted an average of 60% to 70% of their proceeds.
“We will give them approval to invest abroad when the time comes. If they need to invest abroad and they have lined up their investments, then they can come to us to obtain approval. And we have given them the undertaking that the central bank would facilitate that.
“During the interim they can bring it back and convert to ringgit, which will help bring the flows back into our foreign currency market,” Adnan Zaylani added.
Bursa Malaysia Bhd chairman Tan Sri Wahid Omar, who was one of the panelists, said while the central bank has done a good job in bringing back the funds, more needs to be done to achieve a higher conversion rate.
“Between 60% and 70% of their proceeds are converted into ringgit but this is pretty low compared to many other countries. Many exporters still like to keep their export proceeds in foreign currencies.
“The challenge psychologically is, if you have your cash in foreign currencies, the propensity to invest in foreign currency externally is very high.
“There must be a more systematic way of getting exporters to convert their proceeds into ringgit. That way, we will see whatever account surplus will then be translated into stronger ringgit over time,” he explained.
He pointed out that Malaysia, has in over 25 years, recorded trade surpluses of RM2.7 trillion, arriving at RM1.5 trillion current account surplus and saw an average 4.5% growth per annum.
“Any country with these fundamentals, the currency should be strengthening. But ours did not. After the pegging of the ringgit, it has strengthened but subsequently it has weakened to RM4.70 today.
“Why is that the case? What is most important is ensuring that the flows, benefits of those surpluses are translated into natural demand for ringgit, month in, month out.
“What this means is that we need to encourage our exporters to convert their export proceeds into ringgit,” Wahid pointed out.