KUALA LUMPUR, Feb 12:
The ringgit has fallen below its fundamental value against other major currencies, driven purely by external sentiment, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said today.
“Once the negative sentiment blows over, economic fundamentals will take over and the ringgit will stabilise,” she said at a briefing on Malaysia’s economic performance in the fourth quarter of 2014.
She noted that the ringgit had fallen 11.9% against the US dollar, in tandem with other major currencies from Sept 1 last year to Feb 10.
But the Australian dollar (-16.2%), euro (-14%) and yen (-12.4%) had performed worse and Zeti said the ringgit’s fall should have been less, should be more in line with regional currencies like the Singapore dollar (-7.6%) and rupiah (-7.5%).
She also said Malaysia is better positioned to manage volatile foreign capital outflows, having experienced such incidents in the recent past.
She pointed out that the highest ever was during the 2008 global financial crisis at US$39.3 billion, where the ringgit value fell 12.6%.
During the “taper tantrum” of 2013, when US Federal Reserve unveiled plans to wind down its easy monetary policy, the outflow was US$19.1 billion and ringgit value fell 9.7%.
The current capital outflow from Sept 1, 2014 to Feb 9 has amounted to US$18.6 billion and the ringgit had fallen 11.9% – almost equal to that in 2008.
Based on how well the ringgit has recovered after such big capital outflows, she is confident the Malaysian currency will once more rebound to its fundamentals – but declined to predict a timeframe when this may occur.
“One major factor driving the sentiment seems to be the perception that oil makes up a big portion of Malaysia’s revenue. That’s no longer true because we now have very diversified revenue sources.”
Zeti said oil made up about 40% of Malaysia’s revenue in 2013, then fell to 30% last year and now revised down to 22% – almost halved within two years as other economic activities are contributing more to the economic pie.
Furthermore, she noted that Malaysia is now a net importer of oil, after factoring in refined petroleum products, and the nation as such stands to gain from lower crude oil prices.
Zeti also said the central bank does not have a policy to weaken the ringgit to boost exports. “I want to emphasise that the central bank of Malaysia does not rely on the exchange rate to conduct monetary policy.”