Malaysia’s central bank sees ‘positive’ economy in 2024 despite ringgit’s drop to 26-year low

The ringgit performed in line with other regional currencies that took a hit from expectations of lower US interest rates, clouds over China’s economic prospects
Malaysia’s 2024 economic growth will be driven by higher external demand and strong domestic spending, on expectations of accelerated global trade, the bank says

Malaysia

Joseph SipalanandAgencies

Published: 9:00am, 21 Feb 2024

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Malaysia’s central bank has defended the trajectory of the country’s economic growth, after the ringgit sunk to its lowest since the 1997 Asian financial crisis, blaming a strengthening US dollar and uncertainty in China’s economy rather than domestic indicators for the slump.

The ringgit fell to 4.7965 against the dollar in midafternoon trade on Tuesday, its lowest since an all-time low of 4.885 in January 1998, according to Bloomberg data.

Bank Negara Malaysia (BNM) on the same day said the ringgit’s performance was in line with other regional currencies that took a hit from expectations of lower US interest rates, the gathering clouds over China’s economic prospects and other geopolitical concerns.

A motorcyclist rides past the Bank Negara Malaysia in Kuala Lumpur. The government expects Malaysia’s economy to grow by 4 to 5 per cent this year, up from expectations of 4 per cent last year. Photo: AP

“BNM is of the view that the current level of the ringgit does not reflect the positive prospects of the Malaysian economy going forward,” the central bank said in a statement.

The ringgit has persistently been one of the region’s weakest currencies exiting the Covid-19 pandemic, ranked only second to the Japanese yen as Asia’s worst performing currency last year.

The weak ringgit is good news for exporters in Malaysia’s trade-reliant economy, but has led to stubbornly high inflation as consumers grappled with rising prices of imports such as fertilisers and animal feed, with costs then passed along the supply chain.

The ringgit lost 6 per cent to the US dollar as of last November, according to BNM data, a further decline from a 5.4 per cent slump against the US dollar across 2022.

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BNM said Malaysia’s economic growth this year will be driven by improved external demand and strong domestic spending, on expectations that global trade will accelerate to 3.3 per cent this year from 2.9 per cent a year earlier, citing estimates by the International Monetary Fund.

The economy is also expected to receive a boost from tourism this year, with arrivals projected to exceed pre-pandemic levels of 26 million tourists, along with an investment splurge in private and public sector projects, BNM said.

“Reflecting these positive developments and the government’s commitment to implement structural reforms and the expected lowering of interest rates in advanced economies, most analysts are forecasting for the ringgit to appreciate this year,” the central bank said.

BNM last month held its key interest rate at 3 per cent and is widely seen to maintain it at the current level throughout the year, on expectations of moderating inflation – a key measure that influences its rate decisions.

A customer buys a chicken from a vendor at a wet market in Kuala Lumpur. Photo: EPA-EFE

It last raised its overnight policy rate by 25 basis points last May. The central bank has said it does not adjust its key rate in response to ringgit movements, which it said is chiefly driven by external factors.

The government expects Malaysia’s economy to grow by 4 to 5 per cent this year, up from expectations of 4 per cent for last year.

Prime Minister Anwar Ibrahim, who is also finance minister, has said the government will work towards narrowing the fiscal deficit to 4.3 per cent of GDP this year, from the 2023 estimate of 5 per cent.

In his first year in power, Anwar has faced criticism for moving slowly to stem inflation and speed up economic growth, with his energies diverted to shoring up support – especially among the Malay-Muslim majority – for his coalition government.