Malaysia’s central bank announced on Tuesday its intention to take action in the foreign exchange market to stabilize the ringgit currency. The central bank highlighted the “excessive” losses the ringgit has recently incurred.
The ringgit has experienced a decline of almost 6 percent against the U.S. dollar this year. It has surpassed the depreciation of other Southeast Asian currencies. It is currently trading near a seven-month low.
Bank Negara Malaysia emphasized that the extent of the ringgit’s devaluation does not align with the underlying economic fundamentals. Furthermore, the recent volatility has been significantly higher than historical fluctuations.
Adnan Zaylani, Assistant Governor of the central bank, stated in a release, “In line with our statutory mandate, Bank Negara Malaysia will actively intervene in the foreign exchange market to counteract excessive currency movements.”
He further asserted that the value of the ringgit will continue to be determined by the market.
Additionally, ongoing government initiatives aimed at fortifying the export-oriented economy will contribute to a more accurate reflection of the country’s fundamentals through the ringgit’s performance.
The central bank also mentioned that clarity regarding the interest rate policies of the U.S. Federal Reserve and the implementation of additional stimulus measures in China, Malaysia’s largest trading partner, could provide support to the ringgit.
Earlier this month, Malaysia’s finance ministry announced the implementation of structural policies designed to attract more capital inflows and foreign investments. These policies would, in turn, bolster the ringgit.
Why is the Ringgit performing so badly?
The Malaysian ringgit experienced a significant drop of nearly 6% during the first half of 2023. This drop makes it the worst performer among emerging Asian currencies. Meanwhile, in a mixed market, the stock markets in Malaysia faced the largest losses. On Friday, most Asian currencies managed to recover from earlier losses. The Philippine peso and Thai baht led the gains with a 0.4% increase each.
Throughout the first half of the year, the ringgit suffered the most among emerging Asian currencies. Experts believe this is primarily due to capital outflows. Its current trading value is at 4.670 per dollar, remaining close to an eight-month low.
DBS Bank’s macro strategist, Wei Liang Chang, stated, “The Malaysian ringgit has been underperforming in Asia due to sustained foreign equity outflows. However, if there is a growth resurgence, sentiment could improve. We might see the USDMYR consolidating around 4.60-4.70 levels in the second half of 2023.”