KUALA LUMPUR: Bank Negara Malaysia’s (BNM) Financial Markets Committee (FMC) said the ringgit "does not reflect Malaysia’s strong macroeconomic fundamentals, such as robust gross domestic product (GDP) growth and moderate inflation.”
The committee noted that the ringgit has significant potential to appreciate and be among the top beneficiaries of US interest rate cuts, given the excessive movement during the rate hike cycle.
"Members also noted that foreign sentiment remains positive and has improved further on the back of collective investor engagement efforts by the government, BNM and industry players," it said in a statement in conjunction with the FMC meeting yesterday.
The committee said it was optimistic for the ringgit’s near term outlook but headwinds remain - including geopolitical risks, uncertainty over the US rate hike trajectory, as well as timing and extent of further domestic subsidy rationalisation.
"Members expressed confidence that continued domestic market stability and the concerted efforts of all parties involved would eventually result in a stronger performance for the ringgit.
"The meeting noted that the latest median Bloomberg forecast for the US dollar against ringgit stands at 4.65 for end-2024 and 4.45 for end-2025," it added.
According to the FMC, broad dollar strength had been observed recently as market participants adjusted their expectations from six US rate cuts earlier in the year to only one to two in 2024, contributing to volatility in the market.
It said despite expectations of only one to two US Federal Reserve (Fed) rate cuts in 2024, the ringgit has remained resilient, depreciating by only 2.6 per cent against the dollar year-to-date, ranking third among 10 regional currencies.
"Since Feb 26, the ringgit is the only currency that has appreciated against the dollar, strengthening by 1.3 per cent. This is a testament to the positive impact of the coordinated actions undertaken by the government and BNM to encourage more consistent and timely inflows by government-linked companies (GLCs) and government-linked investment companies (GLICs),” it added.
The FMC also acknowledged Malaysia’s continued commitment to structural reforms and that the diesel subsidy rationalisation "was noted to be well received and served to combat leakages and reinforce the government’s commitment to fiscal discipline.”
"Members also highlighted the importance of ensuring an effective communications strategy and implementation regarding the potential future rationalisation of RON95 petrol subsidies," it added.
The committee said the government’s recent efforts to attract high quality investments, including renewable energy initiatives under the National Energy Transition Roadmap (NETR) and data centre infrastructure projects, have been successful in attracting new foreign direct investments (FDI).
"However, members also observed other shifts in FDI flows, particularly in the manufacturing sector, to other lower cost countries in the region,” the committee noted. - Bernama
