Which is perhaps why Malaysian policymakers are not too concerned about a possible interest rate hike by the US Federal Reserve this year.
Medley Global Advisors, a macro research service owned by the Financial Times, said it did not expect the ringgit to face volatility on the scale of last year, when falling commodity prices and political turmoil drove the currency to record lows.
“Instead, it anticipates the ringgit to maintain a level of just over (ie, weaker than) RM4 to USD1, with depreciation pressure due to the increasing odds of a Fed hike offset by relatively stable oil prices and the fact that the political controversy surrounding Prime Minister Najib Rezak is these days at a simmer rather than threatening to boil over,” the Financial Times reported.
In addition, the report said, markets were cheering the appointment of former deputy governor Muhammed Ibrahim as the new head of Bank Negara Malaysia.
“Investors think he will try to uphold the central bank’s independence as fiercely as his predecessor, the formidable Zeti Akhtar Aziz, rather than bending to the government’s will.”
The report said a weaker ringgit was both a help and a hindrance. It should boost exports over time but, more immediately, it might have some impact on investment as both private and public companies would delay capital imports.
It said Malaysian policymakers considered the ringgit weakness in recent weeks — after touching RM4.40 to USD1 in January, it strengthened to RM3.85 to USD1 in April before retreating again to around RM4.10 to USD1 — as “rational” against a globally strengthening dollar.
BNM officials, the report said, also did not see current capital outflows as a sign of investor pessimism.
It said they pointed to private consumption gradually gaining momentum over the past few quarters despite slower credit growth. Also, electric and electronic exports continue to show resilience.
Also, a series of micro measures announced last January to boost consumption, such as pension contribution deferments, and the upcoming holiday season would probably mean better consumption numbers during the current quarter, the report said
Therefore, it said, the bank’s policymakers — who next meet on July 13 — feel no urgency to cut interest rates and, barring unforeseen external shocks, are comfortable keeping the overnight policy rate at 3.25 per cent for a prolonged period.
“While some in the market interpreted BNM’s reduction in the statutory reserve ratio earlier this year as a precursor to a cut, officials say the move addressed short-term liquidity needs at the time and is unrelated to monetary policy,” the FT report added.
BNM generally lets the ringgit move according to regional trends.