In a statement today, the central bank’s Financial Markets Committee (FMC) noted there has been an immediate impact on market flows and “increased market interest in buying the ringgit”.
“The potential for further conversion to ringgit could be high, given the prevailing level of foreign currency balances onshore.
“The FMC noted that BNM will enhance engagements with corporates and investors to further encourage conversions and strengthen market sentiment on the ringgit,” it said.
The FMC had convened today to discuss recent developments in the ringgit foreign exchange (FX) market.
On Tuesday, BNM governor Abdul Rasheed Ghaffour said in a statement the ringgit is undervalued. He added BNM has stepped up its engagements with GLCs, GLICs, corporations and investors to encourage continuous inflows to the FX market.
Since then, the ringgit has stabilised and strengthened slightly against the US dollar. The ringgit was at 4.74 to the greenback at today’s closing compared to 4.77 at Monday’s close.
The local currency had slipped past 4.80 against the US dollar last week, the weakest level since January 1998 during the heights of the Asian financial crisis.
The FMC also said it welcomes second finance minister Amir Hamzah Azizan’s recent statement on the ringgit especially on the intensified coordination between the government and BNM to encourage more inflows into the market.
“This includes stepping up coordination with GLCs and GLICs to encourage them to repatriate foreign investment income and convert that income into ringgit more consistently, playing their roles to support the ringgit.
The FMC noted that BNM will enhance engagements with corporates and investors to further encourage conversions and strengthen market sentiment on the ringgit.
“The meeting concurred with the assessment the ringgit’s current level is deemed undervalued, particularly as Malaysia’s economic fundamentals continue to be strong and the economic prospect is positive,” it added.
The FMC also noted global investors’ continued confidence in the Malaysian financial market. It said that on a year-to-date basis, the KLCI rose 6.7%, supported by US$422 million (RM1.6 billion) inflows from non-resident investors.
“Long-term government bond holdings by non-residents continued to be stable at around 22% while the FX market remains vibrant with a healthy daily turnover of US$15.3 billion (RM72.6 billion). These will continue to facilitate efficient intermediation in the economy,” said the FMC.
FMC chairman and BNM deputy governor Adnan Zaylani said based on the insights shared at today’s meeting, the prospect for the ringgit to strengthen from here is strong.
Standard Chartered Bank Malaysia’s Head of Treasury, Sylvia Wong said external factors, namely US rate hike expectations, continue to dictate regional FX movements including the ringgit.
“Once US rate cut visibility improves, bilateral exchange rates valuation against the US dollar should improve,” the statement quoted her as saying.
The FMC was established by BNM in 2016 and comprises representatives from the central bank, financial institutions, corporations, financial service providers and other institutions involved in the financial markets.