“Malaysia’s economic recovery is already well under way due to the strong fundamentals and financial system as well as the pre-emptive policy measures to weather the challenging external environment,” BNM governor Nor Shamsiah Mohd Yunus said today.

For a start, she said, it was important that nothing was done that could jeopardise the recovery or shake the confidence of investors.

“(Failure to ensure that) can create a negative self-fulfilling cycle,” she said in the governor’s feature address at the Khazanah Megatrends Forum 2022 on “Nagivating Malaysia’s Economic Transition in a post-Covid World”.

Nor Shamsiah said Malaysia had begun to take that step when it developed the financial sector blueprint that was published in January.

In it are five key priorities, namely to foster a vibrant funding ecosystem, elevate financial well-being of households, advance digitalisation, facilitate an orderly transition to a green economy and advance value-based finance through Islamic finance leadership.

On Malaysia’s economic performance, Nor Shamsiah noted that the lifting of travel restrictions had helped to boost the tourism-related sectors. “This is expected to spill over to the rest of the economy,” she said.

“The realisation of multi-year projects continues to provide support to investment activity and brighten prospects,” she added.

She pointed out that exports had recorded double-digit growth since early 2021 and the order books of exporters remained healthy. These positive developments would continue to provide support for growth in 2023, she said.

Nor Shamsiah said the labour market had also strengthened. “Wages have risen 5% and 7% in the manufacturing and services sectors respectively, and unemployment is now under 4%,” she said.

She noted that headline inflation had stayed at an average of 3.1% year-to-date. It was largely supply-driven but demand has also picked up with the reopening of the economy.

Nonetheless, she said, inflation was likely to peak in the third quarter this year but the upward pressure would partly be contained by price controls and the prevailing spare capacity in the economy.

“But the outlook for 2023 will be more challenging due to rising geopolitical tensions and conflict, global inflationary pressures and extremely volatile financial markets. This will lead to slower growth next year,” Nor Shamsiah said.

She also noted that there was reason to be optimistic. “The Malaysian economy is not in crisis and the fundamentals remain strong. Pre-emptive policy measures will help us to weather the storm,” she said.

She said Malaysia would just have to ensure that nothing was done to jeopardise the recovery and reduce investors’ confidence, “lest we create a negative self-fulfilling cycle”.

Compared with the 1998 crisis, Malaysia has not done so badly. The economy contracted by 5.5% in 2020 compared with 7.4% in 1998.

Unemployment has dropped from 5.3% in May 2020 to 3.7% now.

Nor Shamsiah said Malaysia now had a more diversified economy with diverse sources of growth that would help to cushion the shocks to the economy.

During the pandemic, the overnight policy rate (OPR) reached a record low of 1.75% but maintaining it at this low level was necessary amid the lockdowns and border closures to support the economy, she said.

The OPR was gradually recalibrated in May, July and September as the economy is now on a stronger footing. Nor Shamsiah said it would continue to be accommodative and supportive of economic growth.

Touching on the appreciation in the value of the US dollar, she pointed out that this was a global phenomenon.

“The US dollar is now at a 20-year high thanks to aggressive tightening of monetary policy by the US Federal Reserve, which has raised the OPR by 300bps this year,” she said.

Like other currencies around the world the ringgit was not spared. The currencies of other major economies have also depreciated against the US dollar.

However, Nor Shamsiah pointed out, the ringgit had also appreciated against some currencies and depreciated against others. Weighed against the currencies of Malaysia’s major trading partners, the ringgit has remained relatively stable.

“We must also realise that the performance of the ringgit against the US dollar is not a reflection of the state of the economy,” she stressed.

“Malaysia also has a strong external position, given that foreign currency borrowings account for less than 3% of total federal government debt,” she added.

The ringgit’s depreciation has its plus points. Malaysia’s exports has risen by 30% this year, she noted.

The ringgit opened at RM4.64 to the dollar this morning, among the lowest levels since the Asian financial crisis of 1997-1998.