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BNM: Ringgit has made significant developments since Nov 2016
Published on: Tuesday, November 21, 2017

Kuala Lumpur: The ringgit has seen significant developments since November last year when it was one of the most volatile currencies, but now it has not only strengthened but has greatly stabilised, said Bank Negara Malaysia (BNM) Governor, Tan Sri Muhammad Ibrahim.

"The implied volatility has declined from a peak of 9.7 per cent to about 3.7 per cent currently," he said in his opening remarks at the Financial Markets Association Malaysia Annual Dinner last Friday.

He said the influence of offshore market activities and its damaging spillovers to the ringgit exchange rate had subsided, consistent with the significant decline in transaction volume in the non-deliverable forward market.

"On the other hand, foreign exchange transaction volume in the onshore market has been sustained with improving transaction costs, facilitating business transactions for all market participants," he said.

Muhammad said the ringgit did, to some extent, reflect Malaysia's economic fundamentals, and the fact that its recent recovery coincided with strong domestic data releases suggested that.

"Nevertheless, in a global financial market that is driven by short-term developments, the ringgit exchange rate can veer in unexpected directions and reach levels that are far from reflecting economic realities," he said.

"Unfortunately, most of these movements are not driven by facts, but perceptions and in ringgit's case, I would call it misperceptions.

"We tend to, in some other instances, base our perception on prior evidence and situations that we are familiar with, rather than update our views with new information," he said.

For many economists and analysts, Malaysia is an oil-dependent economy and when the oil price goes south, the Malaysian economy suffers.

"While this was true many years ago, these simple relationships are continuously assumed to be fixed and hold to perpetuity," said Muhammad.

Despite the many structural changes leading to a more diversified Malaysian economy and reduced reliance on oil, this perception has persisted.

"For the uninitiated, the percentage of oil revenues to government revenues was 41.3 per cent in 2009 compared to only 14.6 per cent in 2016.

"This fact seems to elude many analysts," he added. – Bernama

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