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KUALA LUMPUR – Foreign analysts remain optimistic about the prospects of a strong ringgit recovery in the near future, Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz said.
In a statement today, he said this is based on their overall median projections of the ringgit against the US dollar for the second (Q2 2022), third (Q3 2022) and fourth quarter (Q4 2022) of 2022 as well as the first quarter of 2023 (Q1 2023) which stood at 4.37, 4.35, 4.28 and 4.27 respectively.
He said for the overall average, foreign analysts’ projection of the ringgit against the US dollar for Q2 2022, Q3 2022, Q4 2022 and Q1 2023 stood at 4.35, 4.37, 4.29 and 4.25, respectively.
Meanwhile, Tengku Zafrul said the ringgit’s current depreciation was contributed by temporary factors which included expectations of the global monetary policy situation and the continued tightening of global liquidity, which have alarmed the international investor community
“As a result, they have reallocated funds to higher-yielding assets denominated in US dollars. This has led to the depreciation of various global currencies, including the ringgit,” he said.
He said another contributor is the weakening of the Chinese yuan due to expectations of a deteriorating China’s growth prospects following movement restrictions in major cities.
“This has an impact on the ringgit because Malaysia-China trade volume is significant with exports to China accounting for 10.7% of GDP (gross domestic product) compared with 2.1% in Indonesia and 1.3% in Thailand,” he said.
He said the International Monetary Fund (IMF) has lowered their forecast for China’s economic growth to 4.4% from 8.1% in 2021.
Besides that, he said the volatile situation of global geopolitical tensions has put pressure on global economies.
“This is reflected in the value of the VIX, or the investor ‘fear index’, which increased to 25.7 points on 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 added.
Tengku Zafrul also said that strong economic fundamentals and prudent ringgit management are expected to contribute to the strengthening of the ringgit against the US dollar despite several temporary factors that have contributed to the ringgit’s current depreciation.
He said that based on current factors, the ringgit’s value is expected to remain stable as Bank Negara Malaysia (BNM) actively manages the local unit to ensure that fluctuations are orderly and not excessive, allowing the economic sector to make investment and expenditure plans based on a more stable value of the ringgit.
“What is more important are our economy’s strong fundamentals such as the country’s continued economic growth prospects,” he said in a statement today.
He said the ringgit would continue to strengthen as the economy expanded by 3.6% in the fourth quarter of 2021 and 5% in the first quarter (Q1) of 2022.
“This is also reflected in the most recent International Monetary Fund analysis, which projects 5.75% gross domestic product (GDP) growth for Malaysia in 2022 driven by pent-up domestic demand and continued strong external demand.
“At the same time, the expectation of a current account surplus means that demand for the ringgit will remain strong,” he said.
Moving forward, Tengku Zafrul said the Finance Ministry (MoF) is optimistic about the country’s economic growth prospects with Malaysia’s GDP 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,” he added. – Bernama, May 28, 2022