BNM will continue to introduce new policies, as new risks from external spillovers emerge, to preserve macroeconomic and financial stability.
In its Quarterly Bulletin, BNM said external spillovers will continue to impact emerging economies in ways that are both expected and unexpected.
“The state of current uncertainties within global policies, economic, political and financial market developments will lead to periods of heightened volatility. In such a case, it is significant for emerging economies to recognise their autonomy in the conduct of policies to solve issues that are unique to the domestic environment, and policies can no longer be constrained to conventional tenets of policy making but instead, new and untested strategies should be considered.” BNM said.
BNM added that Malaysia enforced a policy strategy that focused primarily on financial market development but included bold ‘market-correcting’ and prudential measures to deal with the country’s unique challenges.
“The policy combination in the series of measures introduced by the Financial Markets Committee (FMC) has been crucial to Malaysia’s success in managing financial market volatility.
“Subsequently, domestic financial market conditions improved substantially,” it added.
The FMC introduced measures to further liberalise the domestic financial market, including allowing for better market access, hedging flexibilities and the introduction of new financial market instruments.
Where a larger degree of firmness was required, such as in solving the issues of offshore ringgit speculative activities, the FMC reinforced the non-facilitation of non-deliverable forward rule.
“Export conversion requirements were put in place to solve the imbalances within the domestic foreign exchange market but with sufficient flexibilities accorded to domestic exporters,” BNM said.
These measures helped reduce volatility in the ringgit exchange rate while speculative pressures also subsided.
Following this, outflows from short-term non-resident investors improved the composition of non-resident holdings in the domestic financial markets towards more stable and sustainable long term investors.
The improved domestic financial market conditions, which also coincided with Malaysia’s stronger-than-expected economic performance, facilitated the appreciation of the ringgit in 2017 to better reflect underlying fundamentals when global financial market conditions improved.