KUALA LUMPUR: Bank Negara Malaysia governor Tan Sri Nor Shamsiah Mohd Yunus has cautioned businesses not to hoard or frontload US dollar purchases to avoid exacerbating the weak ringgit against the US dollar.
Nor Shamsiah, who also indirectly dismissed any move to change Malaysia's flexible exchange rate to capital controls or currency peg, said the ringgit's performance against the greenback alone was not a reflection of the state of the economy.
"The exchange rate is only one indicator among many. It is important to consider the strength and positive performance of the Malaysian economy.
"Growth is robust, the labour market is healthy and the financial system is resilient and continues to perform its role effectively. Further, Malaysia has a strong external position with more foreign currency assets than foreign currency liabilities," she said in her feature address at Khazanah Megatrends Forum 2022 today.
Foreign currency borrowings only accounted for less than three per cent of total federal government debt, she added.
Since January this year, the ringgit has depreciated by more than 10 per cent against the US dollar, which Nor Shamsiah attributed the strength of the greenback as a global phenomenon – not just a Malaysian one.
The US dollar was now at a two-decade high due to aggressive tightening of monetary policy by the US Federal Reserve which increased its policy rate by 300 basis points this year, she said.
Nor Shamsiah said corporate Malaysia could help in maintaining orderly market conditions by taking actions which did not exacerbate the situation.
"Bank Negara will ensure that our onshore foreign exchange market remains liquid, so businesses can be assured that all their foreign currency needs can be efficiently fulfilled. Corporates and domestic financial institutions should also be prudent in managing their balance sheets.
"This includes avoiding creating new vulnerabilities, especially from foreign currency debt and financial imbalances, as well as hedging their risks appropriately. Businesses and investors that benefit from a ringgit depreciation should also take advantage of the weaker ringgit.
"For example, for those in tourism and exports to increase production and capitalise on this opportunity, and for those with a global presence, to reinvest back home," she said.
Nor Shamsiah stressed that a flexible exchange rate continued to be relevant as it allowed the country to absorb external shocks.
This also allows Bank Negara's Monetary Policy Committee to set the policy rate based on Malaysia's domestic growth and inflation outlook, rather than be constrained in having to follow the monetary policy of other advanced economies.
"Now, we know that exchange rate movements create winners and losers. No doubt, the US dollar strength will raise the cost of imported goods, including food prices," she said, adding that imported inputs account for less than 20 per cent of production cost.
"We understand that the increase in prices especially in food prices is a concern for many. And although the exchange rate impact on inflation is not one to one, it partly contributes to the rising cost of living as higher commodity prices and supply disruptions affect domestic prices."
Nor Shamsiah said various measures were being implemented to lessen the impact of the increase in prices.
"These include social assistance, stabilisation of prices and access to discounted necessity goods."
Nor Shamsiah said on the converse, the ringgit depreciation would benefit export-oriented sectors which employ more than 30 per cent of the Malaysian labour force.
"In fact, Malaysia's exports have increased by 30 per cent this year supported by several factors, including exchange rate valuation gains. The acceleration in export growth has, to some extent, contributed to higher job creation and increase in wages. This shows that it is important that we have a diversified economy that helps to mitigate external shocks," she added.