The current strength of the ringgit therefore does not reflect the country’s economic fundamentals, he said when quizzed on the possibility of the value of the local currency breaching the RM5 to the US dollar psychological level.
“We have been managing this through our presence in the forex market, and our aim is to manage excess volatility and ensure an orderly market,” he added after a briefing on the third quarter gross domestic product (GDP) print today.
The ringgit is Asia’s worst-performing currency after the yen, plunging last month to levels last seen during the depths of the Asian Financial Crisis 25 years ago. The ringgit fell to a low of 4.7880 to the dollar on Oct 23, and year-to-date it has fallen 5.9% against the greenback.
Economists that FMT Business spoke to previously said the nightmare scenario of the ringgit breaching the RM5 to the dollar level could not be ruled out.
Fundamentals matter
On the country’s fundamentals, Rasheed pointed to Malaysia’s robust growth, favourable labour market conditions, low inflation, strong external sector, and current account surplus.
“We have a strong banking sector that can intermediate funds into the economy, and also deep financial markets,” he added.
He said the central bank is also promoting the use of local currency settlement for trade, rather than in US dollars, which will help reduce pressure on the ringgit.
He said Malaysia currently has local currency settlement arrangements with various countries including China, Indonesia and Thailand.
Local currency settlement refers to settlement of a bilateral transaction between two countries which is conducted in the respective currency of each country, where the settlement is conducted within their jurisdiction.
Rasheed said Malaysia’s fundamentals plus the structural reforms undertaken by the government will, moving forward, attract investments and provide more enduring support for the ringgit.
BNM announced today the economy expanded by 3.3% in Q3 from 2.9% in the preceding quarter.
The central bank said growth was anchored by resilient domestic demand. Household spending remained supported by continued growth in employment and wages.
Meanwhile, investment activity was underpinned by the progress of multi-year projects and capacity expansion by firms.
Overall, the Malaysian economy expanded by 3.9% in the first three quarters of 2023.