FMM MEMBERS' ADVISORY: Bank Negara Malaysia Encourages Businesses in All Sectors to Repatriate Overseas Investment Income and Export Proceeds to Bolster the Ringgit

Head Office, KL

March 22, 2023

Bank Negara Malaysia (BNM) in releasing the Annual Report 2023, Economic and Monetary Review 2023 and Financial Stability Review for Second Half 2023 on March 20, 2024 stressed that despite Malaysia’s strong fundamentals and positive growth prospects for 2024 (the economy is projected to grow between 4% and 5% in 2024 while headline inflation is expected to average between 2% and 3.5% amid contained cost pressures from easing global supply conditions), the current Ringgit level remains undervalued.

It was explained that greater policy rate increases in other countries relative to Malaysia is one of the main factors causing the depreciation of the Ringgit against other currencies. BNM Governor Datuk Abdul Rasheed bin Abdul Ghaffour was quoted saying that the decline in the value of the Ringgit is temporary and due to external factors and that looking ahead, financial markets expect the Ringgit to appreciate further into 2024 and continue on an appreciating trend as the effect of global factors subside.

There are different factors that can affect the movements of Ringgit over the short- and long- term. In the short-term, Ringgit performance is mainly affected by cyclical factors including interest rate differentials, fluctuations in the global economic conditions, and changing investor sentiments. However, in the long-term, Ringgit exchange rates are more anchored by domestic fundamental determinants.

In the longer term, structural reforms which can help to improve Malaysia’s economic prospects will also provide more enduring support to the Ringgit. Steady growth and stabilising global cost conditions will provide a window of opportunity to implement key reforms such as implementation of the various master plans; labour market reforms; strengthening social protection; and commitment to fiscal reforms.

BNM during an engagement session with chambers of commerce, business councils, trade associations and CEOs of Malaysian companies on March 22, 2024 has stressed that a whole-of nation approach is needed to ensure the stability of the Ringgit. Amongst the efforts undertaken by BNM include:

Ensuring sufficient liquidity in the domestic foreign exchange (FX) market;
Dynamic management of monetary operations;
Stepping up engagements with corporates and investors to encourage more inflows into the FX markets by:
* Encouraging government-linked companies (GLCs) and government-linked investment companies (GLICs) and corporates to repatriate and convert income from overseas investments;
* Encouraging exporters to convert export proceeds into Ringgit; and
* Promoting the use of local currency for trade settlement to reduce reliance on USD.
Enhanced communication on Ringgit.

In this regard, BNM is making a call to action by the business community on the following:

Adopt a ‘Malaysia First’ attitude
* Prioritise and realise investment opportunities domestically.
* Choose domestic goods, services and recreation.

Manage investment activities that minimise outflows
* Defer any new investment abroad.
* Repatriate and convert realised investment income earned abroad in a more timely and consistent manner.
* Hedge any new and large investments abroad.

Manage trade activities in a prudent manner
* Repatriate and convert export proceeds into Ringgit in a timely manner.
* Where possible, utilise local currency settlement facilities to minimise dependency on USD for trade settlement purposes.
* Refrain from holding back conversion and front-loading import payments beyond what is required for business needs.

I strongly urge members to take heed of the call by BNM Governor for businesses to support BNM’s efforts as additional drivers to manage the short-term pressure on the Ringgit and for a firmer Ringgit in the coming months.

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Tan Sri Dato’ Soh Thian Lai

President, Federation of Malaysian Manufacturers

FMM Advocates Transparency, Integrity, Accountability and No Corruption

For the information of:

YBhg Datuk Abdul Rasheed bin Abdul Ghaffour, Governor, Bank Negara Malaysia

YBhg Dato' Marzunisham Omar, Deputy Governor, Bank Negara Malaysia