Ringgit remains resilient despite US rate hike, depreciation of the Chinese Yuan

SHAH ALAM - Despite facing external pressure such increase in interest rates by the US Federal Reserve, depreciation of the Yuan currency and other geopolitical issues, the ringgit remains resilient, assures the Finance Ministry (MoF).

In a statement today, MoF clarified that the nation’s strong financial fundamentals and international reserve, among other factors, are sufficient to mitigate any shocks to the ringgit and the nation’s financial position.

“However it is reasonable to give attention to the ringgit exchange market which remains resilient. To date, the average exchange rate on a daily basis is USD12.6 billion compared to USD11.3 billion in 2021, with an average fluctuation of 3.9 per cent (average for 2021 at 4.6 per cent).

“The ringgit which remains flexible will continue to benefit the Malaysian economy by easing accommodating suitable external sectors while protecting the domestic markets from global shocks that will give a negative impact.

“Malaysia’s external position also remains strong including a healthy current account balance and a strong net external creditors position that has improved the nation's capability to withstand uncertainties and external shocks.

“Moreover, Malaysia’s fundamentals remain strong as what is shown through growth and competition in exports which are consistent, sufficient international reserved as well as a lower inflation trajectory compared to other countries in the region.

“All of which is expected to cushion the ringgit’s depreciation,’’ said the statement.

This follows after the US had raised interest rates as an aggressive means to combat a worrisome rise in inflation in the country, the highest in the last 40 years.

This has led to the highest liquidation of the global bond market.

Moreover, the ringgit is also affected by the Yuan’s depreciation as China is one of Malaysia’s largest trading partners.

The weakening of regional currencies also affected the ringgit, all of which are largely affected by the US Federal Reserve raising interest rates

However, compared to neighbouring countries, Malaysia’s inflation is under control and much lower with an expected 3 per cent of inflation for 2022.

This is in comparison to Indonesia (3.3 per cent), Singapore (3.5) per cent, Thailand (3.5 per cent), Vietnam (3.8 per cent) and the Philippines (4.3 per cent).

This is further supported by the Department of Statistics Malaysia’s projected inflation of 2.2 per cent for March 2022.

However, MoF and Bank Negara Malaysia will monitor closely on both financial and non-financial risk to the nation’s economy.

This includes recent geopolitical issues that have pressured the global supply chain that could impact inflation and cause uncertainty in the foreign currency exchange market as well as the domestic market.