Bank Negara won’t peg ringgit, says don’t price it out of sync

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The stronger ringgit in early June was mainly driven by weak US employment data that led to rising expectations for the Federeal Reserve to delay increasing the interest rate this month.

The central bank has stated that it will not peg the ringgit, despite its continued depreciation.

KUALA LUMPUR: Bank Negara Malaysia today says it will not peg the ringgit despite the recent volatility the currency has been facing due to the external environment.

“The ringgit should not be determined by speculative positioning. Its level must be supported and dictated by the underlying fundamentals as such transactions are contracted by the banks on a daily basis.

“That’s how the prices of the ringgit should be determined,” Governor Datuk Muhammad Ibrahim said after announcing Malaysia’s economy grew 4.3 per cent in the third quarter of this year.

“Please don’t price the ringgit out of sync with what the fundamentals are. That is very important.

“This might entail certain guides that banks should not do certain things temporarily, not permanently, just to calm the market.

“I think that is a very important part because we did not want the market to be dictated by matters that have nothing to do with Malaysia’s economic fundamentals,” the Governor said, when asked on the sharp drop in the ringgit earlier today.

According to wire reports, the ringgit’s one-month non-deliverable forward,  or offshore rates, fell to 4.5280 versus the US dollar, while spot rates, also known as onshore rates, stood at 4.2670.

“(The) ringgit will continue to face volatility mainly due to uncertainties in the external environment. The value of the ringgit should not be determined by speculative positioning,” he said.

The ringgit depreciated against most major and regional currencies during the third quarter, he said.

He said this was a reflection of the shift in investor sentiments and the re-balancing activity of portfolio investors throughout the quarter, driven mainly by external events.

“While all regional currencies were affected by the continued uncertainty over the timing of US interest rate normalisation, the ringgit and the currencies of other commodity-exporting countries were faced with additional adjustments due to the highly volatile global crude oil prices during the quarter,” he said.

Muhammad also said expectation of another interest rate increase by the US Federal Reserve System next month would continue to affect investor sentiment as well as uncertainty under the newly-elected President Donald Trump.

The global crude oil price is expected to remain volatile due to uncertain supply and demand situation, especially given the upcoming Organisation of the Petroleum Exporting Countries meeting at end-November.

Overall, the ringgit depreciated by three per cent against the US dollar during the quarter. The ringgit also depreciated against the euro (-3.9 per cent), the Japanese yen (-4.2 per cent) and the Australian dollar (-5.5 per cent), but appreciated against the pound sterling (0.2 per cent).

The ringgit also depreciated against all regional currencies except the Philippine peso, by between 1.8 per cent and 7.3 per cent.

The central bank maintained the overnight policy rate at 3.00 per cent as at September Monetary Policy Meeting, after the reduction in July.

The degree of monetary accommodation is consistent with the policy stance to ensure steady growth amid stable inflation, supported by continued healthy financial intermediation. – Bernama