Ringgit one of Asia's best performing currencies, strongest in 7 years

Kuala Lumpur: The ringgit strengthened by 10.4 per cent at RM4.062 against the US dollar in 2017 after experiencing four consecutive years of depreciation, its strongest performance in seven years, says Bank Negara Malaysia (BNM).In its 2017 Annual Report released on Wednesday, the central bank said the ringgit was also one of the best-performing regional currencies, despite intermittent depreciation due to "risk-off" events during the year.

"The strength of the ringgit was mainly a reflection of the robust domestic economic performance and positive investor sentiments following further liberalisation of the domestic financial markets.

"It was also supported by positive global developments during the year," BNM said.

These include the recovery in global growth and trade, a slower-than-expected pace of monetary policy normalisation in the advanced economies, and the broad weakness of the US dollar.

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It said while external developments continued to affect the movements of regional currencies, the appreciation of the ringgit during this period was also driven by the resilience of the Malaysian economy.

This was reflected in the better-than-expected gross domestic product growth in the first three quarters of 2017 and the sustained double-digit growth in Malaysia's exports.

The announcement of initiatives to develop the onshore financial in April to promote a fair and effective financial market, improve bond market liquidity, ease hedging activities, and enhance transparency and market information also provided additional impetus for the further strengthening of the ringgit.

The central bank said the recovery in global demand and positive sentiments on the global and Malaysia's economic outlook, following the upward revisions to the growth projections for 2017 and 2018 by the International Monetary Fund (IMF) and the World Bank, also attracted international investors towards Malaysia's financial assets.

Besides being one of the best-performing currencies in the region, the ringgit was also one of the least volatile, said BNM.

The ringgit's 30-day rolling standard deviation averaged at 3.1 per cent in 2017, while other regional currencies, which include the Chinese renminbi, Indonesian rupiah, Korean won, Philippine peso, Singapore dollar, New Taiwan dollar and Thai baht, averaged in the range of between 3.2 per cent and 7.8 per cent.

The ringgit was broadly stronger against regional currencies and also appreciated against the Japanese yen and pound sterling, but depreciated against the euro.

BNM said while the ringgit's appreciation in 2017 reflected the underlying strength of the Malaysian economy, any currency adjustment, irrespective of its direction, should be in an orderly manner.

"For a highly open economy like Malaysia, a gradual adjustment in the exchange rate provides the foundation for orderly adjustments in the external sector.

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"Given that Malaysia is deeply integrated with the global economic and financial systems, this has proven to be a challenge in the past few years," the central bank said, adding that in the near term, the ringgit would remain susceptible to volatile conditions in the global financial markets, following the fluid global environment.

Strong economic fundamentals, a flexible exchange rate, ample international reserves, deeper and more diversified financial markets and a strong banking system have and would continue to be crucial to Malaysia's resilience to swings in capital flows and exchange rate volatility, it said. –Bernama

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