Why is the ringgit currently undervalued, according to BNM?

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The Ringgit's Undervaluation is Attributed to External Monetary Policy and Supported by Strong Domestic Fundamentals

According to Bank Negara Malaysia (BNM), the ringgit's current undervaluation is primarily a consequence of the aggressive policy rate adjustments by the United States Federal Reserve since 2022, a factor that has influenced broader currency market dynamics globally. Despite this external pressure, BNM asserts that the ringgit's present level is unwarranted, as it is underpinned by robust investor confidence, demonstrated by stable non-resident holdings of long-term government bonds at approximately 22 per cent and recent foreign inflows into domestic equities, coupled with Malaysia's positive growth prospects.
External Monetary Policy as a Key Driver

The depreciation of the ringgit since 2022 has been significantly influenced by the assertive policy rate changes implemented by the US Federal Reserve. This external monetary policy stance has created broader currency market dynamics that have impacted numerous economies, not just Malaysia.
Undervaluation Unwarranted by Domestic Strengths

BNM governor Datuk Abdul Rasheed Ghaffour stated that the ringgit's current undervaluation is not justified given Malaysia's economic outlook. The central bank highlights sustained investor confidence as a crucial supporting factor, citing the consistent holdings of long-term government bonds by non-residents, which have remained around 22 per cent.
Evidence of Investor Confidence and Inflows

Further bolstering the argument for the ringgit's underlying strength are recent foreign inflows into domestic equities. These investments indicate a positive sentiment among global investors towards Malaysia's economic potential and business environment.
Positive Growth Prospects and Investment Opportunities

With Malaysia's positive growth prospects and the current undervalued currency level, global investors are positioned to benefit from participating in the nation's economic expansion. BNM is actively engaging with international investors to underscore these opportunities and Malaysia's attractiveness for investment.

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Why is the ringgit currently undervalued, according to BNM?

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