What fundamentals should Malaysia focus on to boost the ringgit?

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Malaysia Must Prioritise Economic Fundamentals and Fiscal Reforms to Strengthen the Ringgit

Malaysia needs to concentrate on its core economic strengths and implement fiscal reforms to enhance competitiveness and support the ringgit. The depreciation of the ringgit against the US dollar is primarily an international phenomenon driven by aggressive interest rate hikes from the US Federal Reserve, impacting numerous other currencies as well. The ringgit's future value is intrinsically linked to the performance of the Malaysian economy and the successful execution of structural reforms.
Enhancing Economic Productivity and Competitiveness

To bolster the ringgit, Malaysia must focus on improving its overall economic productivity and competitiveness. This involves a multi-faceted approach to structural reforms that touch upon key areas of the economy. These reforms are essential for creating a more robust economic environment that can naturally support a stronger currency.
Implementing Structural Reforms for Long-Term Growth

The World Bank highlights that structural reforms are crucial for the ringgit's strength. These reforms encompass a range of initiatives aimed at improving the investment climate, rationalising subsidies to enhance fiscal efficiency, and consolidating public finances. Furthermore, advancements in the education sector are identified as a vital component in boosting long-term economic potential and attractiveness to investors.
Addressing International Economic Pressures

The weakening of the ringgit against the US dollar is a significant concern, exacerbated by factors such as food inflation and the widespread use of the US dollar in international trade, with over 80 per cent of Malaysia's exports and imports invoiced in the currency. While the Malaysian ringgit has seen a decline against the US dollar since early 2022, it is important to note that other major currencies, including the Japanese yen and the British pound, have experienced sharper depreciations.
Maintaining Monetary Policy Balance

Malaysia's recent increase in its overnight policy rate (OPR) to 2.5 per cent is viewed as a normalisation step in response to economic recovery and rising inflation, and remains below pre-pandemic levels. However, a critical aspect for preventing capital outflows is maintaining an appropriate interest rate differential between the US Federal Reserve's rates and Malaysia's OPR. A gap that becomes excessively wide could potentially lead to capital leaving the country.

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What fundamentals should Malaysia focus on to boost the ringgit?

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