(Bloomberg) -- The ringgit is expected to recover along with other emerging-market currencies once central banks in developed economies are done raising interest rates, according to Bank Negara Malaysia Governor Abdul Rasheed Ghaffour.
Even as the currency weakens this year, the current interest-rate level in Malaysia is sufficient to support the economy, he said in an interview with Bloomberg Television on Friday. The central bank has held its benchmark at 3% since July.
“We believe the interest rate at 3% is slightly accommodative and it is appropriate for the economy at this point of time,” said Abdul Rasheed, who started his five-year term in July.
Policymakers will place greater importance on domestic considerations, including the outlook for inflation and growth in the coming quarters, in deciding on borrowing costs — and are less pressured by the need to attract inflows into the market, he said.
The ringgit strengthened more than 2% in November as signs that the US Federal Reserve is done raising interest rates revived demand for developing-nation assets. The Malaysian currency slumped to almost 4.8 per US dollar in October, the weakest level since since the height of the Asian financial crisis in 1998.
It remains the worst performing currency in emerging Asia this year, having fallen about 6% against the greenback. Even after 125 basis points in rate increases since May 2022, Malaysia’s gauge is at a record discount to the upper bound of the Federal Reserve’s benchmark.
Adding to the pressure on the currency: sputtering growth in China, Malaysia’s biggest trading partner, has weighed on its exports.
There could be “some reprieve” for emerging currencies, including the ringgit, once the tightening monetary policy cycle in developed economies reach a peak, he said.
Former Malaysian premier Mahathir Mohamad said in November the country should consider pegging its sinking currency to the dollar, repeating the policy he introduced during the Asian financial crisis in the late 1990s.
“It’s certainly not on the cards at all,” Abdul Rasheed said. “We’re not in a crisis right now.”
Malaysia is “still enjoying credible growth” of about 4% and inflation has been moderating, he said. The nation’s unemployment rate has fallen to 3.4%, and may decline further toward levels seen before the onset of the pandemic, he said. It climbed above 5% in 2020.
“The fundamentals are there, actually,” the central bank chief said.
For now, Bank Negara Malaysia seeks to ensure that the local market can function in an orderly manner, with enough liquidity, he said.
The central bank has already been keeping liquidity tight by selling bills to support the currency, and the nation’s interbank rate has risen to the highest level since January. The majority of economists surveyed by Bloomberg in November expect policy makers to keep borrowing costs unchanged through at least 2024.
(Updates with additional comments by the governor starting in the eighth paragraph.)
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