KUALA LUMPUR: The ringgit which opened slightly higher on Monday on Bank Negara Malaysia (BNM) intervention, closed lower as analysts predicted that any effect from the intervention would be shortlived.
At 9am, the local unit rose to 4.6615/6650 versus the greenback compared to 4.6635/6705 at last Friday's close. However by 6pm it fell to 4.6640/6690, continuing its downtrend.
Malaysia University of Science and Technology economist Dr Geoffrey Williams said Bank Negara's Financial Market Committee (FMC) statement last week had stopped the decline in the ringgit, which stabilised at around RM4.66-4.68 to the dollar.
However, Williams said Bank Negara can only do very little to systematically influence the ringgit in the short term.
"Our foreign currency reserves are too low for the central bank to intervene for long. Increasing the overnight policy rate (OPR) has a very short-term impact and could damage the ringgit in the long term," he told the New Straits Times.
RHB Research said Bank Negara's foreign exchange (FX) intervention had picked up steam recently to stabilise the ringgit against the greenback and a signal that an interest rate defence of the currency is not something the central bank is willing to engage in currently.
It opined that the FX intervention is a stop-gap measure in emerging markets (EM) where the fundamental drivers of the currency are on a weakening path.
"Hence, we believe (Malaysia's) FX reserves could fall to around US$109 billion within the next three months from the May 31, 2023 level of US$112.7 billion as Bank Negara continues to use the FX intervention policy tool to stabilise the ringgit against the US dollar.
"Ultimately, FX intervention is unlikely to have a sustained durable impact on the path of the ringgit against the US dollar," it said in a note yesterday.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said it is a highly unusual situation as the US Federtal Reserve is expected to maintain its tight grip on monetary policy in the near term.
However, Afzanizam said its recent forecast in June showed that the Fed will begin cutting down their policy rates to 4.6 per cent and 3.4 per cent in 2024 and 2025 respectively.
"On that note, possible monetary easing in those two years will change the dynamics of the ringgit going forward.
"The recent announcement by Bank Negara's FMC should be lauded as it will help improve the market sentiments and give the impression that the central bank is on top of things. Furthermore, it will clear the air of doubts about the county's ability to prescribe suitable policies in dealing with the external shocks," he added.