Malaysia’s Removal from US Currency Watch List Affirms Ringgit’s Market-Driven Status

BNM Welcomes Removal from Watch List

Bank Negara Malaysia (BNM) has welcomed Malaysia’s removal from a US currency manipulation watch list, affirming the ringgit’s market-driven status. Governor Datuk Seri Abdul Rasheed Ghaffour stressed that Malaysia has never used its exchange rate to gain a competitive advantage in the market.

No Competitive Advantage

“So, this is something that affirms our belief and affirms our position on this matter. It’s a welcome development,” he said during today’s third quarter (3Q) 2024 gross domestic product (GDP) press conference.

US Treasury Department’s Report

The US Treasury Department’s semi-annual report released Thursday, Nov 14, monitors countries with large trade surpluses with respect to the US that also actively intervene in foreign exchange markets to gain a competitive advantage.

Ringgit’s Movement Reflects Fundamentals

The governor also highlighted that, more importantly, the ringgit’s movement should reflect the fundamentals of the nation’s economy. “So, our presence in the foreign market is to ensure there is no excessive volatility and that it is an orderly market so that businesses can operate smoothly,” he said.

Ringgit’s Performance

Abdul Rasheed said the ringgit appreciated against the US dollar by 14.9 per cent in the 3Q and 3.1 per cent year to date as at Nov 13. “The ringgit’s performance in the third quarter was mainly driven by the US Federal Reserve’s (Fed) shift towards a monetary policy easing stance, including the cumulative 75-basis points federal funds rate cut in September and November,” he noted.

Healthy Two-Way Flow

“In terms of our efforts to encourage businesses to repatriate the export earnings into ringgit and encouraging investors to bring back income and convert to ringgit… that has shown a positive outcome,” he said, adding that this has resulted in a healthy two-way flow in the market and appreciation in the ringgit itself.

Forex Turnover

The BNM governor said Malaysia also saw an increase in the average daily forex turnover from US$15 billion (US$1 = RM4.48) to US$18.2 billion year-to-date.

Nominal Exchange Rate

“Previously, the ringgit depreciated by 10 per cent between February to October. In terms of the nominal exchange rate, it depreciated by 9.8 per cent,” he said, adding that this was due to changes in the policy shifts in the advanced economies, particularly in the US.

Future Outlook

Abdul Rasheed believed the ringgit is set to benefit from strong domestic growth and momentum from the ongoing government reforms and the narrowing of the interest rate differentials between the US and Malaysia. He said financial market participants also expect further rate cuts by the US Fed moving into 2025.

Initial Volatility

Nevertheless, Abdul Rasheed noted that the change in the US presidency could lead to some initial volatility, but he reassured that Malaysia would be ready to bounce back, as seen in previous instances. “Our ringgit appreciated by about eight per cent after initial volatility. So we can expect the same now as well,” he said.

Conclusion

Malaysia’s removal from the US currency watch list is a welcome development that affirms the ringgit’s market-driven status. The BNM governor’s statements emphasize the country’s commitment to maintaining an orderly and stable foreign exchange market, which is essential for businesses to operate smoothly.

FAQs

* What is the US currency manipulation watch list?
The US Treasury Department’s semi-annual report monitors countries with large trade surpluses with respect to the US that also actively intervene in foreign exchange markets to gain a competitive advantage.
* Why was Malaysia removed from the watch list?
Malaysia was removed from the watch list because it has never used its exchange rate to gain a competitive advantage in the market, and its exchange rate movement reflects the fundamentals of the nation’s economy.
* What is the current state of the ringgit?
The ringgit appreciated against the US dollar by 14.9 per cent in the 3Q and 3.1 per cent year to date as at Nov 13.