KUALA LUMPUR: The initiative to have government-linked companies (GLCs) and government-linked investment companies (GLICs) repatriate their earnings from abroad has been cited as a factor that has helped to lift pressure on the ringgit.
Economists believe the strategy will help the country manage risks arising from heightened financial market volatility.
However, they said, domestic structural reforms are still necessary to provide a more enduring support for the ringgit over the medium term.
The ringgit has performed better in the last two months, strengthening by 1.6 per cent since the repatriation policy was implemented by the Ministry of Finance (MOF) and Bank Negara Malaysia, economist Dr Geoffrey Williams said.
"Firstly, this stopped the depreciation, then stabilised the ringgit," he said.
He said the ringgit has been managed well without having to resort to higher interest rates that could damage the economy.
"So the policy worked," he pointed out.
The ringgit began the year at RM4.60 to the US dollar, only to depreciate to RM4.79 by Feb 20.
However, it strengthened to RM4.68 on May 16, a level last seen two months ago, helped by the latest US inflation data that boosted hopes for an interest rate cut in the United States.
Data from Bloomberg shows that the ringgit stood at RM4.74 to the dollar on May 8, down 3.1 per cent from Dec 31, 2023.
The data shows that the depreciation of the ringgit is also in line with the downward movement of the other major and emerging currencies against the US dollar within the range of -9.3 per
cent (Japanese yen) to -1.8 per cent (British pound).
"The US Federal Reserve's (Fed) expectation to delay reducing its interest rates in 2024 and other global factors, such as prolonged concerns surrounding China's economy and geopolitical conflicts, especially in the Middle East, had contributed to the risk-off sentiment in the market, which continues to favour the US dollar as a safe-haven currency," it said.
Earlier this year, the MOF appealed to GLCs and GLICs as well as exporters to repatriate their earnings from abroad and convert them into ringgit on a more consistent basis.
Private investment companies have also been urged to prioritise domestic investment and to delay new investments abroad to reduce pressure on the ringgit.
Apart from these, the government is focusing on reforms that will indirectly improve the country's economic performance and strengthen the ringgit.
For instance, the main pillar of the Madani Economic Framework is to restructure the economy to help Malaysia emerge as a leader in Asia.
Moving forward, Williams expects the ringgit to be affected on a day-to-day basis by "market noise".
He expects financial market factors such as interest rates and capital flows to influence the ringgit in the short term.
"In the long term, the ringgit's performance depends on economic fundamentals, which will determine investment returns and opportunities for higher growth. So, economic reform must be the priority now," he added.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said the current performance of the ringgit validates Bank Negara's stand that the currency was severely undervalued due to external factors.
Ahmed Razman emphasised that the macroeconomic indicators have demonstrated that Malaysia's economic fundamentals remain strong.
"Nevertheless we cannot remain static or docile. Continuous focus on economic reform efforts is vital to ensure sustainability and competitiveness of our economy, as well as the performance of the ringgit," he added.