KUALA LUMPUR: The government's and Bank Negara Malaysia's (BNM) coordinated efforts to encourage government-linked companies, investment firms, and corporations to repatriate and convert foreign income proceeds have strengthened the ringgit's performance.
BNM stated that these measures have contributed to ample liquidity in the domestic foreign exchange (forex) market, with an average daily volume of US$17.6 billion.
Additionally, the central bank highlighted other key factors driving the ringgit's positive momentum, including the US Federal Reserve's 50 basis points (bps) rate cut and clearer expectations for further reductions.
BNM's Financial Markets Committee (FMC) added that the current strategy could sustain and enhance liquidity in the onshore FX market.
The ringgit was one of the top-performing global currencies in the third quarter of 2024 (3Q2024), strengthening 14.4 per cent against the US dollar and gaining 11.4 per cent year-to-date, BNM said in its FMC discussion summary yesterday.
Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid noted that the measures implemented by the government and BNM have been quite effective in helping to improve the ringgit.
He also said that engagement sessions with fund managers and analysts have led to stronger buy-in from foreign investors, as evidenced by recent upgrades from several global investment bank.
"Those measures are transitory in nature. Hence, it is important that the economic reforms will be carried out in a timely fashion and be able to demonstrate positive outcome," he told Business Times.
Meanwhile, BNM noted that investor confidence in Malaysia has grown, driven by the country's robust economic growth and the government's continued focus on structural reforms.
BNM highlighted significant foreign portfolio inflows in 3Q24, supported by a strong performance on the Kuala Lumpur Composite Index (KLCI) and a narrowing spread between Malaysian Government Securities (MGS) and US Treasury Securities (UST).
Malaysian exporters, encouraged by the ringgit's recovery, are also showing increased interest in converting foreign proceeds.
"Among exporters, there was a shift in sentiment that led to more interest for conversion of export proceeds, while importers have also reduced their front-loading tendencies by purchasing only required quantities for their business activities," it said.
In the domestic bond and sukuk markets, the committee discussed initiatives to enhance liquidity and broaden the investor base.
Near-term plans include introducing corporate bond and sukuk trading within the principal dealers' (PD) framework and holding investor engagement sessions to familiarise non-residents with Malaysian corporate bonds, sukuk structures, and government bonds.
BNM also addressed the full transition to the Malaysia Overnight Rate (MYOR) and the Malaysia Islamic Overnight Rate (MYOR-i), alongside the permanent discontinuation of KLIBOR.
The central bank plans to engage relevant associations and stakeholders for feedback, with a consultation period lasting one month.
"Members also agreed to assist in raising awareness of the consultation among clients and counterparties," it said.