The ringgit experienced a period of sustained depreciation against the US dollar in 2022 amid the US Federal Reserve raising its policy interest rate aggressively by 425 basis points to address inflation, said Bank Negara Malaysia (BNM).

In its Annual Report 2022 released today, the central bank said the ringgit hovered close to levels last experienced during the 1997 Asian Financial Crisis, and there were even calls for the ringgit to be pegged to prevent it from falling further.

The ringgit fell to a historic low of RM4.7465 against the US dollar on Nov 4, 2022, almost at the Jan 7, 1998 level of 4.8850.

“While small movements in the ringgit exchange rate are common, large fluctuations in the level can create lasting impact for businesses, households, and the economy.

“A depreciation in the ringgit hurts those who consume imported goods and services, and if sustained, can lead to a rise in the overall cost of living. At the same time, a weak ringgit could increase exporters’ earnings,” it said.

However, BNM noted that despite the ringgit’s sharp depreciation against the US dollar, Malaysia’s nominal effective exchange rate (NEER) was relatively stable.

This was because the currencies of key trading partners were similarly affected as the ringgit, and Malaysia’s relative competitiveness remained unchanged at a negative 5.4 per cent in 2022.

“Despite a major external shock in the form of fast and sizeable adjustments of interest rates in the US which led to the rapid appreciation of the US dollar against most currencies, Malaysia’s competitiveness was relatively unaffected.

“The domestic economy remained on its recovery path, registering a growth rate of 8.7 per cent for the year,” it added.

Given Malaysia’s flexible exchange rate regime, fluctuations in the ringgit should be expected to occur from time to time, said BNM, adding that since reaching a peak of RM4.7477 on November 4, 2022, the ringgit did rebound to reach RM4.2435 on Jan 30, 2023.

The central bank said as challenges in the global economy continue to evolve, US dollar developments are likely to continue to be the main factor affecting the ringgit exchange rate.

“Our financial system has held up well throughout this period and continued to facilitate intermediation to support the broader economy.

“Reflecting on the events of the year, the bank will continue to proactively monitor developments and ensure that our economy continues to be served by an exchange rate regime that supports our mandate to achieve monetary and financial stability conducive to the sustainable growth of Malaysia’s economy,” it added