Anwar, who is also the finance minister, said instead of being lowered abruptly, the deficit should be reduced gradually to an acceptable level, as was announced earlier.
“Economics as well as Bank Negara Malaysia’s (BNM) wisdom, too, will determine the ringgit’s strength, but we also have to consider that a sharp rise in the overnight policy rate (OPR) would have a negative impact on businesses,” he said during Minister’s Question Time in the Dewan Rakyat today.
He was replying to Radzi Jidin’s (PN-Putrajaya) query on the effect of the ringgit’s depreciation on the national economic recovery and the approach being taken to strengthen the local currency.
So far, Anwar said, the government and BNM have been cautious and prudent in raising interest rates as a balanced approach is required.
Elaborating on the ringgit’s performance, he said the lower exchange rate recorded recently was due to the strengthening of the US dollar.
“Since Dec 31, 2022, the ringgit has eased 3.8% against the US dollar.
“The Japanese yen fell more than 6% to the greenback, while the Australian dollar, South Korean won and Chinese yuan dropped about 3%” he said.
He noted that BNM had raised the key interest rate by 125 basis points (bps) since January 2022 compared to 380bps in Singapore, 225bps in Indonesia, and 500bps in the US.
“Singapore has raised (its rates) high so the country’s currency has been firmer,” he said.
On Malaysia’s OPR hike, Anwar said BNM had full discretion in determining the OPR rate since the previous government administrations, in line with legislation.
“Under the current unity government, we have only raised the OPR once,” he said.
Anwar advised the central bank to consider not just the monetary issue but also the fiscal policy and investor confidence in total.
“What is happening now is, as seen from investor confidence through investments received for the first quarter of 2023, the country’s economic growth has provided assurance although the ringgit’s value is still tied to the US dollar’s strength,” he said.
On the dependence on the greenback, Anwar said the country needs to be stable and adopt responsible long-term fiscal policies to prevent any adverse impact on the domestic economy.
He also highlighted the proposal to establish the Asian Monetary Fund, which he said could reduce the currency’s dependence on the US dollar given that the US’ interest rate decisions were based on its own domestic interests.