Don’t hoard or frontload US dollar purchases, BNM tells Corporate Malaysia

BANK Negara Malaysia (BNM) has asked corporations not to hoard or frontload US dollar purchases.

While the current depreciation of the ringgit is due to the strength of the US dollar, BNM governor Tan Sri Nor Shamsiah Mohd Yunus (picture) said corporate Malaysia can help in maintaining orderly market conditions by taking actions that do not exacerbate the situation.

“BNM will ensure that our onshore foreign-exchange market remains liquid, so businesses can be assured that all their foreign currency needs can be efficiently fulfilled. So, there is no need to hoard or frontload US dollar purchases,” she told the Khazanah Megatrends Forum 2022 in Kuala Lumpur today. 

She also said that corporates and domestic financial institutions should also be prudent in managing their balance sheets, including avoiding creating new vulnerabilities, especially from foreign currency debt and financial imbalances, as well as hedging their risks appropriately.

Talking about the ringgit, she noted that since January 2022, it has depreciated by more than 9% against the US dollar.

“But on this, we need to be clear that the strength of the dollar is a global phenomenon — not just a Malaysian one. In fact, the US dollar is now at a two-decade high due to aggressive tightening of monetary policy by the Federal Reserve which increased its policy rate by 300bps (basis points) this year. Risk-off sentiments arising from geopolitical conflict and a moderating global growth outlook have further increased demand for dollar assets,” she said.

Like most countries in the world and around this region, she said the ringgit has not been spared.

– source: BNM

“The currencies of other major economies have also depreciated against the US dollar. If we also look at how the ringgit has fared against the currencies of our trading partners, it has appreciated against some and depreciated against others. In fact, the performance of the ringgit, if weighed against the currencies of Malaysia’s trading partners, has been relatively stable. This underlines the point that we are in an environment of US dollar strength,” she said.

She said the ringgit depreciation is also expected to benefit export-oriented sectors which employ more than 30% of the Malaysian labour force.

“In fact, Malaysia’s exports have increased by 30% this year supported by several factors, including exchange rate valuation gains. The acceleration in exports growth has, to some extent, contributed to higher job creation and increase in wages. This shows that it is important that we have a diversified economy that helps to mitigate external shocks,” she said.

Moving forward, she said the future ahead will be ‘challenging, highly uncertain and unpredictable’.

“However, we are not in a crisis, our growth trajectory remains positive and we should remain confident about the future. The next one to two years will present a crucial window for Malaysia to be taking bold steps forward.

“As a country, we must now focus on strengthening our economic fundamentals, resilience and flexibility. Our neighbours within the region are actively pressing on with reform measures. We run the risk of being left behind if we do not act now,” she said. — TMR