“BNM is not considering capital controls or restrictions like those introduced during the Asian Financial Crisis (AFC), taking into account the potential costs and impact on the economy,” said BNM deputy governor Adnan Zaylani Zahid.
In a statement by BNM’s financial markets committee (FMC) today, Adnan, who is the FMC chairman, reaffirmed this in “response to lingering concerns among market participants”.
“The current level of the ringgit is deemed undervalued, particularly as Malaysia’s economic fundamentals continue to be strong and the economic prospect is positive,” he said in the statement issued after FMC’s meeting today.
The committee had met to discuss recent developments in the ringgit foreign exchange (FX) market, among other matters.
The statement said that since the last FMC meeting on March 1, the movements of the ringgit and regional currencies continued to be driven by global factors, particularly uncertainties surrounding the timing and extent of interest rate adjustments by major central banks.
The meeting also discussed the impact of the government’s and BNM’s ongoing coordinated efforts to encourage more consistent inflows by GLCs and government-linked investment companies (GLICs), as well as greater engagements with Malaysian corporates and businesses.
The central bank announced the initiative in late February after the local currency touched the RM4.80 level against the US dollar, its weakest level since 1998 during the AFC.
Capital controls were announced by BNM on Sept 1, 1998 during the height of the crippling AFC, which brought many Asian economies to their knees. The following day, the ringgit, which had been in a freefall, was pegged to the greenback at 3.80 to the dollar.
The controversial decision was made by the government of then prime minister Dr Mahathir Mohamad which opted for capital controls instead of accepting a financial bailout by the International Monetary Fund. The central bank began dismantling the restrictions from early 1999 and the ringgit resumed its float in 2005.
FMC encouraged by ringgit’s uptrend
FMC members noted the higher FX conversion activities in the onshore FX market, driven by the significant flows arising from the coordinated efforts as well as opportunistic selling of US dollars (USD) by certain exporters.
“The meeting views that the ongoing coordinated efforts can be sustained given that the focus is on investment income and export revenue which are recurring in nature.
“In addition, a more sustained ringgit strengthening could spur greater interest for FX conversion by corporates with excess foreign currency holdings, further supporting sentiment on the ringgit,” the statement said.
It noted that FMC was particularly encouraged by BNM’s enhanced efforts to further promote FX conversion activities by Malaysian corporates and businesses.
“Since Feb 26, the ringgit was the only regional currency that strengthened against the USD, gaining 0.6%. Across the same period, the average daily FX volume was US$17.6 billion compared to US$15.5 billion in 2023,” it said.
In contrast, the Korean won was down 1.6%, Thai baht (-1.5%), Indonesian rupiah, (-1.4%), Chinese yuan (-0.5%) and Singapore dollar (-0.3%) against the greenback between Feb 26 and April 5, it added.