STRONG economic fundamentals and prudent ringgit management are expected to contribute to the strengthening of the ringgit against the US dollar (USD), Finance Minister Tengku Zafrul Abdul Aziz said.

This, he said, could take place despite several temporary factors that have contributed to the ringgit’s current depreciation.

Zafrul said that the factors that have contributed to the depreciation are the expectations on the global monetary policy situation as well as the continued tightening of global liquidity.

These have alarmed the international investor community.

“As a result, they have reallocated funds to higher-yielding assets denominated in USD.

“This has led to the depreciation of various global currencies, including the ringgit,” he said in a statement today.

He also said it was due to movement restrictions in major cities, China’s growth prospects are expected to deteriorate this year, which have weakened the Yuan.

“Moreover, the International Monetary Fund (IMF) has lowered their forecast for China to 4.4% (2021, 8.1%).

“This has an impact on the ringgit because Malaysia-China trade volume is significant, with exports to China accounting for 10.7% of GDP (compared to 2.1% in Indonesia and 1.3% in Thailand).

“Also the volatile situation of global geopolitical tensions has put pressure on global economies.”

Zafrul said that this was reflected in the value of the VIX, or the investor “fear index,” which increased to 25.7 points (May 29, 2022) from the previous average of 18 points.

“This has also caused investors to flock to “safe-haven assets” (such as gold and the US dollar), putting downward pressure on various currencies, including the ringgit.”

He, however, said all of these factors are regarded as temporary.

“Based on current factors, the ringgit’s value is expected to remain stable and strengthen as BNM (Bank Negara Malaysia) actively manages the ringgit to ensure that fluctuations are orderly and not excessive.

Zafrul also said what was more important was that the economy’s strong fundamentals, such as the country’s continued economic growth prospects.

“The ringgit will continue to strengthen as the economy expands by 3.6% in the fourth quarter of 2021, and 5.0% in the first quarter of 2022.

“This is also reflected in the most recent IMF analysis, which projects 5.75% GDP growth for Malaysia in 2022, driven by pent-up domestic demand and continued strong external demand.”

He said that at the same time, the expectation of a current account surplus means that demand for the ringgit will remain strong.

“Analysts remain optimistic about the prospects for a strong recovery of the ringgit in the near future.”

Zafrul added that the MOF was optimistic about the country’s economic growth prospects.

“Malaysia’s GDP is expected to grow between 5.3 and 6.3% in 2022, contributing to the ringgit’s stability.

“The MOF and BNM will continue to monitor both financial and non-financial risks to the national economy in order to maintain economic stability and the well-being of all Malaysians.” – May 28, 2022.