KUALA LUMPUR: Bank Negara Malaysia governor Datuk Shaik Abdul Rasheed Abdul Ghaffour said structural reforms which can help to improve Malaysia's economic prospects, will help in the long-term recovery of the ringgit.
The ringgit is seeing short-term weakness due to cyclical factors including interest rate differentials with the US, fluctuations in the global economic conditions, and changing investor sentiments.
Abdul Rasheed said in the long-term, ringgit exchange rates are more anchored by domestic fundamental determinants.
In this respect, Malaysia's economic fundamentals are sound, as evident from key indicators in 2023 and the projections for 2024.
"This lends support to our assessment that the ringgit is currently undervalued. "Our economy is currently diversified with a strong external sector resilience and sound financial sector," he said during a media conference held in conjunction with the release of its Annual Report 2023, Economic and Monetary Review 2023 and Financial Stability Review for Second Half 2023 today.
Nevertheless, Abdul Rasheed said in the longer term, structural reforms to the country's economy will provide more enduring support to the ringgit.
He added that the central bank has and will continue to take concerted measures to manage short-term pressure on the ringgit.
This includes intensified efforts to encourage repatriation and conversion of foreign investment income by government-linked companies (GLCs) and government-linked investment companies (GLICs), stepping up discussions with corporates and investors, and monitoring conversion behaviour of domestic exporters and importers and engaging them on any unusual trends that BNM observe.
Since the beginning of 2024, the ringgit has depreciated from RM4.60 against the US dollar to RM4.79 against the US dollar on February 20.
As of March 15, however the ringgit has recovered to RM4.70 against the US dollar.
Looking ahead, he said financial markets expect the ringgit to appreciate further into 2024 and continue on an appreciating trend as the effect of global factors subside.
He noted that this will be supported by a number of factors, namely a reduction in the US policy rate during the year is expected to ease the pressure on the ringgit and other currencies.
"In addition, the recovery in the growth of regional countries is also expected to increase inflows into the region, benefiting Malaysia and the ringgit.
"Furthermore, in the domestic market, the favourable economic outlook and the implementation of structural reforms are expected to provide support to the ringgit.
"Nevertheless, we remain vigilant of factors that could increase the risk of a decline in the ringgit, such as China's slow growth momentum and moderation in global commodity prices," he said.