Malaysian ringgit slips 2% against dollar in two months

The Malaysian ringgit experienced a moderate depreciation of 2.0% against the US dollar in the two months concluding at the end of April. This marks a shift after a period of considerable strength, during which the currency had appreciated by roughly 20% over the previous two years.

According to a report by the Organisation for Economic Co-operation and Development (OECD), the ringgit had recovered from previous lows, supported by a narrowing interest rate gap with the US and improvements in the domestic economic fundamentals. The report noted that authorities emphasize the exchange rate's role as a shock absorber, backed by efforts to promote balanced two-way flows and deepen the foreign exchange market.

The OECD report suggests that the current monetary policy stance remains appropriate for supporting economic growth and maintaining market expectations. However, it advises that consideration might need to be given to reversing recent interest rate reductions if overall and core inflation trends upward beyond current projections. This adjustment would be particularly relevant if energy and commodity price shocks begin to impact core inflation, pushing it beyond Bank Negara Malaysia's forecast range of 1.5% to 2.5% for 2026.

The report also highlighted potential indirect inflationary pressures from fuel subsidies and advised that monetary policy should remain flexible amidst increasing global uncertainties. It recommended that existing policy tools, including liquidity operations and statutory reserve ratio flexibility, could complement the overnight policy rate if economic growth falters or external shocks worsen. The OECD also welcomed Malaysia's progress in strengthening its macroeconomic policy framework but recommended continuous improvements in monetary policy communication.