KUALA LUMPUR: The recent depreciation of the ringgit was largely driven by the strengthening of the United States dollar (USD) and the uncertainty of China’s economic growth, says the Finance Ministry.

The ministry said on Parliament’s website on Monday (March 18) that this factor also affects other regional currencies.

"Since March 2022, the US central bank has raised interest rates aggressively by 525 basis points from 0.25% to a range of 5.25 to 5.50% compared to Malaysia’s overnight policy rate (OPR) which was only raised by 125 basis points from 1.75 per cent to 3.00%.

"The lower OPR increase and the significant difference in interest rates with the US by 250 points, encouraged foreign investors to move capital out of the domestic market to overseas markets that provide higher returns,” the MOF said.

The ministry was responding to Datuk Siti Zailah Mohd Yusoff (PN-Rantau Panjang) who asked for an explanation regarding the depreciation of the ringgit and the impact on the country.

It said that as an exporting country, the depreciation of the ringgit sustains the income of the export-oriented sector through translation gains in the short term.

The ministry said that based on Bank Negara Malaysia’s analysis, a five per cent drop in the ringgit exchange rate compared to the USD is associated with an increase of around 0.2 percentage points on average in the consumer price index (CPI), but the impact of the depreciation of the ringgit on the CPI is under control.

"The government is also planning measures to implement more effective subsidies and targeted income assistance, especially to help the affected groups. This will ensure that fiscal strengthening can be achieved through more productive spending,” it said. - Bernama