KUALA LUMPUR, Nov 28 — The government stays committed to implementing structural policies in order to grow the economy and improve competitiveness, thereby attracting fund inflows and foreign investments as well as strengthening the ringgit.
Deputy Finance Minister I Datuk Seri Ahmad Maslan said the initiative was part of the government’s efforts to transform the economy guided by the MADANI Economy framework.
“Besides the recovery of the global market stability, the implementation of the New Investment Policy to improve the country’s investment climate and productivity as well as the government’s commitment to strengthening fiscal sustainability via the tabling of the Public Finance and Fiscal Responsibility Act are expected to improve investor sentiment and further strengthen the ringgit’s value,” he said at the Dewan Negara today.
Ahmad was responding to a question from Senator Datuk Lim Pay Hen about the Ministry of Finance’s strategy to face the risk of a sharp depreciation in the ringgit’s value that increases the cost of living for the people, especially foodstuffs that depend on imported sources.
He said the government was aware that the ringgit movement would have an impact, especially on the price of imported goods.
“Bank Negara Malaysia’s (BNM) analysis shows that the impact of the ringgit’s movement is quite significant for segments with high import dependency such as food and transport with an estimated seven per cent and five per cent import content in household consumption (respectively),” he said.
Hence, he said the government had taken several steps to help the people deal with the rising cost of living such as price controls and subsidies on essential goods such as food and fuel in addition to the Payung Rahmah initiative to help the affected households.
Ahmad said at the same time, the central bank would continue to manage domestic and external risks to deal with volatility in the foreign exchange market, using its operational policy instruments to ensure orderly market conditions.
“In an uncertain global financial market, the flexible ringgit exchange rate has played a significant role as an external shock absorber, reducing the impact on domestic economic activities.
“The return of market stability globally, the improvement of investor sentiment and the surplus of foreign exchange receipts influenced by Malaysia’s core economic activities are expected to be able to strengthen the ringgit’s value,” he said.
On the ringgit’s exchange rate at the level of RM4.67 against US$1 this morning, he said four factors might have contributed to the position, namely the United States (US) Federal Funds Rate (FFR), the Malaysian Government Securities (MGS), the uncertainty of economic performance and the Israeli-Palestinian conflict.
“The current FFR stands at 5.5 per cent amid the US Federal Reserve efforts to stem inflation.
He said during the Covid-19 pandemic, Malaysia’s overnight policy rate (OPR) was lowered to 1.75 per cent to expand the economy but post-pandemic, the rate has been raised to three per cent.
“There are many times in the past that our OPR was higher than the FFR. FFR even reached 0.25 per cent but now they changed their strategy to high FFR,” he said.
As for the comparison between MGS and the US Treasury notes and bonds, he said the rate of returns for the US Treasury was less against MGS previously but the US Treasury yield is now higher (4.39 per cent) versus MGS (3.87 per cent).
Therefore, he said more foreign funds were invested outside Malaysia in the form of bonds and this further affected the ringgit’s value.
Nonetheless, Ahmad said the government would take advantage of the ringgit’s value, among others, to increase exports, reduce the use of imported goods and use more local goods.
He said the government also hoped that more tourists would visit Malaysia and use the ringgit, thus boosting the ringgit’s value.
“Another important step is the de-dollarisation in bilateral trade with countries using the local currencies such as Indonesia and Thailand.
“We have also implemented 25 per cent of our trade settlement with China using ringgit and renminbi,” he added.
