KUALA LUMPUR: Efforts by Bank Negara Malaysia and the government to strengthen the ringgit particularly against the US dollar have come to fruition as it helped to cushion the pressure on the local currency.
Bank Negara governor Datuk Abdul Rasheed Ghafour said the measures also resulted in an improved ringgit performance against regional currencies.
Although the ringgit still hovers between 4.68 and 4.70 against the greenback, Abdul Rasheed said the current level reflected the improvements that came following the deployment of tools by the central bank.
"The ringgit still hovers between 4.68 and 4.70 but these are actually improvements. If you look at where we were, before we started taking actions, it was higher.
"The pressure on the ringgit has come down if you look in terms of from where we started our open to actions on February 26, and that has brought a number of positive outcomes," he told a press conference at the announcement of the gross domestic product figures for the first quarter of 2024.
He noted from the beginning of the year until May 15, the ringgit depreciated 2.4 per cent against the US dollar, in line with the movements of other regional currencies.
But the ringgit appreciated on a nominal effective exchange rate (NEER) basis, by 0.5 per cent.
He said the central bank is deploying the tools at its disposal to ensure that domestic financial markets remain orderly and continue to function efficiently.
In addition, the coordinated initiatives by the government and Bank Negara with the government-linked companies and government-linked investment companies (GLICs), as well as engagements with corporates and exporters have gained further traction.
This resulted in greater and more consistent flows into the foreign exchange market, which helped cushion the pressure on the ringgit.
"The daily average foreign exchange (FX) trading volume has also increased to US$17.6 billion during the period of Feb 26-May 15, 2024, alongside a narrower bid-ask spread, indicating improved liquidity in the domestic FX market," he added.
Meanwhile, the governor said headline and core inflation are projected to remain moderate between 2.0 per cent and 3.5 per cent as well as 2.0 per cent and 3.0 per cent respectively.
The upside risks for inflation this year will include higher prices from the potential review of fuel subsidies.
Abdul Rasheed said the central bank had taken into account some impact of the changes on the prices for RON95 and diesel on inflation.
"The short-term impact may be in terms of consumption and investments but the long-term effects will be positive for the country as it will lead to more fuel efficient spending for households.
"The changes will also encourage corporations to invest in energy efficient production like renewables," he said.
Downside risks for the inflation outlook will be softer commodity prices from weaker global growth and slower demand conditions due to weaker-than-expected external demand.
Meanwhile, the governor noted that the Monetary Policy Committee (MPC) deemed the current monetary policy stance remained supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.
He said Bank Negara observes the stance taken by other central banks globally and study how rate cuts taken by those banks would impact growth and inflation outlook.
"The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth.
"However, it does not mean that we will follow them to take rate cuts," he said.
The MPC held the Overnight Policy Rate steady at 3.0 per cent during its recent meeting.