Weaker ringgit plays very key role as shock absorber for external developments — BNM Governor

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KUALA LUMPUR (Aug 16): While the ringgit, in tandem with other currencies, has depreciated against the US dollar, Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus said the weaker ringgit has played a very key role in absorbing external shocks.

She told reporters here today that despite the ringgit depreciating 1.3% year-to-date, it is still in the middle of the pack, when compared with other regional currencies’ performances.

“The ringgit has played a very key role in absorbing… and has created a role [for itself] as a shock absorber to ensure that the external developments and the external shocks [do] not translate to disruption in economic activities,” said Nor Shamsiah at media briefing on the nation’s gross domestic product (GDP) for the second quarter of 2019 today.

She cited it as one of the current strengths seen in the Malaysian economy, saying that she has yet to see any negative impact on the country’s economic activities.

“We have weathered a number of episodes of severe capital outflow and severe depreciation of the ringgit, and yet the Malaysian economy continues to grow, and our financial market continues to function in orderly manner,” said Nor Shamsiah.

She also noted that the ringgit weakness has somewhat helped increased order volume from the manufacturing side, and the country was “already seeing a trade diversion” from the ongoing trade spat between the US and China.

“Some products that are from the manufacturing sector are producing more… they are seeing higher volumes and there are signs of possible relocation of manufacturing facilities to Malaysia… in setting up new factories or enhancing product capacity.

Nonetheless, she said the signs of trade diversion are still in the early stages. Thus, it will take some time to realise, and the impact will not be seen as soon as this year or early next year.

Regarding global bond yields’ continuous fall, Nor Shamsiah said the downtrend movement of the Malaysian bond yield is not as bad as other regional economies.

She explained that the Malaysian bond market is deep and diversified, coupled with a diversified investors base, which has helped cushion impact on bond yields.

When asked if there will be another round of rate cuts, Nor Shamsiah said: “We will continue to assess the external developments and how it affects the medium growth trajectory… both growth and inflation.”

The upcoming monetary policy committee meeting will be on Sept 11, 2019.

See also: Malaysia records stronger 2Q GDP growth at 4.9%