KUALA LUMPUR, March 18 — The recent depreciation of the ringgit was largely driven by the strengthening of the United States dollar (USD) and the uncertainty of China’s economic growth, according to the Finance Ministry (MOF).
The ministry said in a parliamentary reply today that this factor also affects other regional currencies.
“Since March 2022, the US central bank has raised interest rates aggressively by 525 basis points from 0.25 per cent to a range of 5.25 to 5.50 per cent compared to Malaysia’s overnight policy rate (OPR) which was only raised by 125 basis points from 1.75 per cent to 3.00 per cent.
“The lower OPR increase and the significant difference in interest rates with the US by 250 points, encouraged foreign investors to move capital out of the domestic market to overseas markets that provide higher returns.”
The ministry was responding to Rantau Panjang MP Datuk Siti Zailah Mohd Yusoff who asked for an explanation regarding the depreciation of the ringgit and the impact on the country.
MOF said as an exporting country, the depreciation of the ringgit sustains the income of the export-oriented sector through translation gains in the short term.
It said that based on Bank Negara Malaysia’s (BNM) analysis, a five per cent drop in the ringgit exchange rate compared to the USD is associated with an increase of around 0.2 percentage points on average in the consumer price index (CPI), but the impact of the depreciation of the ringgit on the CPI is under control.
“The government is also planning measures to implement more effective subsidies and targeted income assistance, especially to help the affected groups.
“This will ensure that fiscal strengthening can be achieved through more productive spending,” MOF said.
To a separate question, it urged all parties to work together via a whole-of-nation approach to strengthen the value of the ringgit.
The ministry said all Malaysians are encouraged to adopt a “Malaysia First” attitude in their daily lives.
“This includes buying domestic goods, as well as investing in the domestic capital market. More tourism campaigns in the country also need to be introduced and improved.”
The ministry was replying to Bachok MP Mohd Syahir Che Sulaiman who wanted to know the concrete steps taken within the framework of the Madani Economy to increase the resilience and competitiveness of the value of the ringgit.
MOF said various concrete measures have been and are being taken by the government and BNM to deal with the fall in the value of the ringgit, including ensuring that the domestic foreign exchange market remains orderly while monitoring the conversion of export proceeds into ringgit by exporting companies.
The ministry also said that the government and BNM also took integrated and coordinated actions to bring in the flow of funds to the foreign exchange market and control overseas investments by private companies, including encouraging them to prioritise domestic investment and delaying new overseas investment.
— Bernama
