On a year-to-date basis, the ringgit has depreciated by 11.2% against the US dollar. However, BNM governor Nor Shamsiah Yunus said, the impact of a weaker ringgit on Malaysia’s external position “remains manageable”.
“The risks from foreign currency external debt are largely contained, as about 68% of debt are either subject to prudential safeguards or are on flexible terms,” she said when presenting the Q3 economic growth report today.
“For instance, as at end-September 2022, onshore banks’ external debt accounted for only 7.7% of total funding. Banks have to comply with liquidity management prudential standards,” Shamsiah said.
She pointed out that the ringgit depreciation has actually led to higher value of the country’s foreign currency assets, lending support to its external position. “Our foreign currency external assets remain sizeable and are sufficient to cover up to 2.1 times of foreign currency external liabilities,” she added.
“Additionally, our sizeable foreign currency liquid assets are sufficient to cover up to 2.6 times of foreign currency external debt-at-risk that are more susceptible to withdrawal and roll over risk.
“And 31.5% of corporate external debt is in the form of intra-group loans, which are generally on flexible and concessionary terms,” she said.
Shamsiah acknowledged that the currency’s fall would have a negative impact on the cost of imports. Nevertheless, she added, only 8% of imports are consumption goods. Moreover, imports constitute a relatively low share of domestic consumption and production.
“In terms of inflation, historically, the magnitude of this exchange rate pass-through to inflation has been limited. On average, a 5% depreciation of the ringgit is associated with a 0.1 to 0.3 percentage point impact to core inflation.”
The overall pass-through is contained by the relatively low share of imported finished goods in the domestic CPI basket, she said. “However, we are mindful of the fact that the impact of ringgit depreciation on inflation could be higher during the current period because of the prolonged environment of elevated costs.”
Moving forward, she said, the impact of the weaker ringgit to inflation would be partly mitigated by lower global commodity prices.