The ringgit started to recover, driven by positive domestic economic performance

KUALA LUMPUR: Malaysia’s currency, the ringgit, is showing signs of recovery as it starts to bounce back driven by positive domestic performance and strong economic fundamentals, according to analysts.

Berita Harian reported, TA Securities analyst, Farid Burhanuddin, said the ringgit has strengthened since hitting a low of RM4.7957 against the United States (US) dollar on 16 April 2024.

According to data from Bloomberg, the ringgit is now the second best performing currency in the Asian region, with figures so far this year showing it has depreciated by just 1.66 percent against the US dollar, behind the Indian rupee which has depreciated by 0.39 percent.

On Friday, the local currency was at 4.6700/6730 against the US dollar, up from 4.6855/6895 at Thursday’s close.

“We believe that the ringgit has been influenced by the favorable domestic performance,” he said in his research note.

Last March, Bank Negara Governor Abdul Rasheed Ghaffour emphasized that the ringgit was undervalued, given Malaysia’s strong economic fundamentals and positive growth prospects.

He pointed out that economic growth is expected to improve this year, driven by a recovery in exports and domestic spending.

“Tourist arrivals and spending are expected to increase further. Continued employment and wage growth continue to support household spending,” he added.

Prime Minister Anwar Ibrahim also previously expressed confidence in the stability of the ringgit despite the recent decline, stating that the currency’s volatility was caused by external factors such as aggressive policy rate adjustments by the US central bank, the Federal Reserve.

Abdul Rasheed also agreed with this view, stating that the current level of the ringgit is influenced by this foreign policy but remains lower than the actual value given Malaysia’s positive growth prospects.

“This is not appropriate, because the ringgit is also supported by continued investor confidence,” said Abdul Rasheed.

Meanwhile, Farid said, BNM has increased efforts to involve and monitor the conversion of export revenue into ringgit by exporting companies in an effort to strengthen the value of the local currency.

He said the move is expected to support the stability of the ringgit and stimulate confidence among investors.

In the latest Monetary Policy Statement (MPS) issued by BNM, the central bank said that the value of the ringgit continues to be driven mainly by external factors, namely the expected direction of monetary policy in the main economies and ongoing geopolitical tensions.

He said the positive effects of coordinated initiatives by the government and BNM with government-linked companies (GLCs) and government-linked investment companies (GLICs) as well as the involvement of corporate companies continue to curb pressure on the ringgit.

“BNM will continue to manage risks arising from significant financial market volatility.

“In the medium term, domestic structural reforms will provide longer-lasting support to the ringgit,” he said.

BNM also decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent, consistent with the current assessment in relation to inflation and growth prospects.

The latest indicators of the country’s economy record continued strong economic activity in the second quarter of this year driven by resilient domestic spending and better export performance.