Malaysia ringgit poised for strong rebound to 4.5 versus US dollar by year-end, Minister Amir says

The ringgit traded at 4.76 to the US dollar on Thursday afternoon, rebounding slightly from 4.8 on February 20 - its worst performance since the 1998 Asian Financial Crisis.

In response to questions in parliament on Wednesday about whether the currency might slide further, Second Finance Minister Amir Hamzah Azizan said that the country’s “economic growth forecast of four to five per cent this year is expected to facilitate the ringgit’s recovery against the US dollar to 4.50 ringgit”.

Amir’s positive growth outlook is based on Malaysia’s inflation rate being the lowest in Asia currently at 1.6 per cent, falling unemployment, a recovery in exports and record-high investments from foreign and local businesses.

“Market analysts have estimated the ringgit to be undervalued by between eight and 10 per cent”, Amir said, noting the local currency’s current slide has largely been driven by the strengthening of the US dollar and the uncertainty of China’s economic growth, which has also dragged down other Asian currencies.

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He also noted that the ringgit has depreciated 3.5 per cent against the US dollar in the year to date, compared with the decline of regional currencies such as the Japanese yen, the Thai baht and the Korean won by 6.3, 4.7 and 3.3 per cent, respectively.

Amir said the Central Bank of Malaysia, or Bank Negara Malaysia (BNM), will continue to monitor financial markets and take necessary measures, including interventions in the foreign exchange market to curb excessive currency movements.

The minister said BNM’s cautious interest-rate policy, which has been maintained at 3 per cent more recently after a previous hike of 125 basis points in total throughout the pandemic, had contributed to capital flight as investors shifted to dollar markets due to the US Federal Reserve’s aggressive tightening policy.

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“The significant difference in interest rates with the US, which is as much as 250 [basis] points, for example, encourages foreign investors to move capital out of the domestic market to a market that provides higher returns,” Amir told members of parliament.

Among the other markets that have received significant capital outflows from Malaysia recently were Thailand, The Philippines, Indonesia, South Korea and India, all of which saw interest rates rising between 200 and 450 basis points in recent months.

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Amir Hamzah, however, cautioned that BNM’s overnight lending rate policy is focused on managing inflation and orderly conduct of the domestic economy, and not on raising rates to shore up the ringgit.

Anwar has brushed aside such comparisons, saying the ringgit’s value should not be politicised and that Malaysia’s economy is on a better footing with a record number of investments in the pipeline.

In 1998, “the ringgit fell, investment fell and inflation went up”, Anwar told reporters at the launch of the International Financial Hub in Kuala Lumpur last Friday.

In contrast, Malaysia recorded its highest-ever approved investments totalling 329.6 billion ringgit (US$69 billion) in 2023, Anwar said, citing data from the National Investment Council.

We are not ignoring it [the ringgit issue]