InsightsFundingLast updated: 7 March 2024

Steady OPR, 'Undervalued' Ringgit: Why Malaysia's Currency Recovery Needed Coordination, Not Just Rate Gaps

Malaysia's central bank, Bank Negara Malaysia (BNM), kept the Overnight Policy Rate (OPR) unchanged at 3% at its second Monetary Policy Committee (MPC) meeting of 2024 — the fifth consecutive hold — and in doing so placed the ringgit, rather than the rate, at the centre of its policy narrative, The Edge Malaysia reported on March 7, 2024. The decision itself carried no surprise: 19 economists surveyed by Bloomberg had unanimously predicted the hold. The novelty lay in the framing. BNM shifted to describing the ringgit as undervalued against economic fundamentals, and economists at UOB, Maybank IB and MIDF read the combination of a steady policy rate and a narrowing interest-rate gap with the United States as the base for a currency recovery during the second half of 2024. This analysis asks a narrower question than the headline did: why did a currency officially labelled undervalued require coordinated policy action — including repatriation flows from government-linked companies — rather than the rate differential alone to recover?

The March decision: a fifth consecutive hold at 3%

At its second MPC meeting of 2024, BNM left the OPR at 3% for a fifth consecutive time. The sequence matters as much as the level. Five consecutive holds describe a committee that has finished adjusting: the easing or tightening cycle that preceded them is over, and the policy rate has become a fixed point around which the rest of the economy — and the currency market — can organise expectations. A rate that stops moving stops being a source of uncertainty, and that is precisely the service the hold performed in March 2024.

The unanimity of the forecast reinforces the reading. When 19 economists surveyed by Bloomberg all expect the same outcome, the outcome itself adds almost no new information to prices; it is already embedded in positions, hedging ratios and forward curves. A fully anticipated decision cannot, on its own, move a currency. If the ringgit's path in 2024 was going to change, the signal had to come from somewhere else in the package — from what the central bank said about the currency, from what the rate gap with the US was doing, or from what coordinated official action was putting into the foreign-exchange market.

What unanimity changes — and what it does not

A unanimous consensus strips the rate decision of surprise value, but it raises the relative weight of communication. With the number itself priced in, the marginal instrument becomes language: how the central bank characterises the currency, what it identifies as the source of weakness, and what it is willing to mobilise against that weakness. That is why the shift to "undervalued against economic fundamentals" is not a footnote to the fifth hold but its companion instrument. The hold fixed the domestic rate; the new vocabulary redefined the problem the rate was meant to solve.

It also fixed one side of the equation economists were watching. With the OPR anchored at 3%, any narrowing of the Malaysia–US rate gap would have to come from the US side of the differential, or from market expectations about that side. Malaysia could not close the gap by cutting toward it without importing other problems, and it signalled no intention of hiking away from it. The differential, in other words, was a variable the recovery thesis had to take partly as given — which is exactly why the thesis needed instruments of its own.

From stability to undervaluation: BNM's change of language

For a central bank, words about the exchange rate are policy instruments in their own right. Describing the ringgit as undervalued against economic fundamentals makes three claims at once. First, that a gap exists between the traded price of the currency and the level the economy's fundamentals would justify. Second, that the gap is not a verdict on those fundamentals — the weakness is located in the market's pricing, not in the underlying economy. Third, that the gap is expected to close, because a price detached from fundamentals carries its own correction inside it.

The framing also reassigns responsibility. A currency described as merely weak invites the question of what is wrong with the economy that issues it. A currency described as undervalued invites a different question: what is wrong with the pricing, and who is positioned against it. The second question is answerable with instruments — flows, conversion, coordination — while the first is answerable only with time and growth. BNM's change of vocabulary therefore converted a diffuse macroeconomic worry into a tractable market-structure problem.

Crucially, the undervaluation framing also sets up the analytical puzzle at the heart of the March 2024 story. An asset priced below its fundamental value should, in standard market logic, attract buyers until the gap closes, with no official help required. That BNM and the economists nonetheless pointed to steady policy, a narrowing differential and coordinated repatriation is an implicit admission that the self-correcting mechanism was not working on its own — or not working on the timetable the recovery thesis required. Undervaluation, in this story, is a diagnosis. The instruments are the treatment.

The rate-gap logic and its limits

The first pillar of the recovery thesis was the interest-rate differential. Economists at UOB, Maybank IB and MIDF argued that a steady OPR together with a narrowing rate gap versus the United States would support the ringgit. The mechanism is the familiar carry logic: capital tolerates a low-yielding currency when the yield penalty for holding it shrinks. As the gap between Malaysian and US rates narrows, the cost of holding ringgit assets falls, and the flow pressure that penalised the currency eases with it.

Why the differential alone cannot close a valuation gap

Rate differentials work on flows at the margin, but a valuation gap that has persisted long enough to be named by the central bank is usually held open by stock positions and entrenched expectations, not only by current yield comparisons. Three limitations follow. First, carry-driven positions unwind on risk sentiment as much as on yields; a narrowing gap does not by itself liquidate the positions that press on the currency in stressed weeks. Second, the differential narrows only as fast as US policy expectations move, and that pace is set outside Malaysia — a recovery thesis resting on the differential alone outsources its timetable to another country's committee. Third, undervaluation of the kind BNM described is partly a confidence problem: market participants who believe the weakness is structural will not buy the currency merely because holding it has become slightly less expensive.

Each limitation points to the same conclusion. The differential is a necessary condition for the recovery — it removes the steady yield penalty — but it is not sufficient to close a gap that the central bank itself attributes to pricing rather than fundamentals. Something had to supply visible, sustained demand for ringgit, and something had to re-anchor expectations about where the currency belongs. Those were the jobs of the other two pillars.

The economists' map: 4.40, 4.38 and the road to 4.20

The forecasts cited by The Edge Malaysia give the recovery thesis a numerical shape. As reported on March 7, 2024:

• Maybank saw the ringgit at 4.40 per US dollar;
• MIDF put the average at 4.38 per US dollar;
• MIDF saw the currency reaching 4.20 per US dollar by the end of 2024;
• the recovery itself was framed as arriving by the second half of 2024, with the steady OPR and the narrowing rate gap as its support.

Read together, the numbers describe a path rather than a single target. An average of 4.38 across the forecast horizon, combined with a terminal 4.20 by the end of 2024, implies that the bulk of the expected appreciation was placed in the later part of the year — consistent with the "second half of 2024" framing of the recovery. The sequence is analytically important: it says the economists expected the first half to absorb the existing positioning and the second half to deliver the correction, once the differential had narrowed further and the coordinated flows had done their work.

The dispersion between the forecasts is itself information. The distance from Maybank's 4.40 to MIDF's terminal 4.20 marks the range of confidence in the coordination story: the stronger the belief that repatriation and conversion will deliver visible demand, the further down the corridor the forecaster is willing to place the currency. A narrow spread would have implied a consensus that the differential alone settles the question; the spread that was actually reported implies a market still weighing how much of the recovery depends on instruments beyond the rate gap.

The repatriation lever: GLCs and GLICs as a flow instrument

The third pillar was the most explicitly coordinated one: the repatriation and conversion of foreign income by government-linked companies (GLC) and government-linked investment companies (GLIC), flagged as a source of support for the ringgit. The mechanism can be described as a sequence of four steps:

1. GLCs and GLICs earn income abroad, which is held in foreign currency;
2. repatriation brings those funds back to Malaysia under coordinated timing rather than at each entity's individual convenience;
3. conversion turns the foreign currency into ringgit in the foreign-exchange market;
4. the resulting demand supports the currency's price independently of the interest-rate differential.

Why does this pillar carry analytical weight? Because it attacks the valuation gap from the flow side, which is the side the differential cannot reach. A narrowing rate gap reduces the penalty for holding ringgit; it does not, by itself, create a buyer. Coordinated conversion does create a buyer — a recurrent, sizeable and, importantly, predictable one. For a currency the central bank describes as undervalued, visible official-sector demand is the signal that the gap is being closed deliberately rather than left to arbitrage that has so far failed to appear.

The repatriation lever also changes the distribution of the adjustment. Rate changes spread their costs across every borrower and saver in the economy; a coordinated repatriation and conversion programme concentrates the adjustment on balance sheets the state can influence directly. In a year when the OPR was held for a fifth consecutive time, that property made the lever attractive precisely because it left the rate — and with it the domestic credit cycle — untouched while still putting pressure on the currency's weak side.

Why coordination, not just carry: three obstacles, three instruments

The analytical core of the March 2024 story is that the recovery thesis was a package rather than a single mechanism. Each pillar answers a distinct obstacle standing between the traded ringgit and its asserted fundamental value:

• the fifth consecutive hold at 3% answers the obstacle of policy uncertainty: with the OPR fixed, the domestic rate path drops off the list of variables investors must guess;
• the narrowing Malaysia–US rate gap answers the obstacle of yield-driven pressure: as the differential shrinks, holding ringgit assets becomes less costly;
• the coordinated GLC and GLIC repatriation and conversion answers the obstacle of missing demand: it supplies buying pressure the market was not generating on its own;
• the "undervalued against economic fundamentals" language answers the obstacle of expectations: it tells the market where the central bank believes fundamental value sits, and therefore in which direction the correction should run.

Remove any one pillar and the thesis weakens in a specific, identifiable way. Without the hold, the differential becomes two-sided and unpredictable. Without the narrowing gap, carry pressure keeps taxing the currency no matter how much conversion demand appears. Without repatriation, the undervaluation claim has no flow behind it and risks becoming mere commentary. Without the framing, the other three lose their common justification, because none of them explains why the currency should be stronger — only why it might stop being weaker.

The undervaluation claim as the keystone

This is why the change of language deserves the emphasis it received. The undervaluation claim is the keystone that locks the other instruments together: it converts a hold, a differential and a conversion programme from three separate technical measures into a single argument about value. It also commits the central bank publicly to a direction of travel, which is costly to reverse and therefore credible in a way that ad hoc intervention is not. A currency framed as undervalued does not need the state to defend it forever; it needs the state to demonstrate, once convincingly, that the gap is being closed — after which private buyers can be expected to resume the job the diagnosis says is profitable.

What would confirm — or break — the recovery thesis

Because the thesis is a package, its checkpoints form a package as well. The observable tests implied by the March 2024 story are:

• whether the OPR path stays as steady as the fifth consecutive hold implies, keeping the domestic leg of the differential fixed;
• whether the Malaysia–US rate gap keeps narrowing, as the economists' recovery calls assume;
• whether GLC and GLIC repatriation and conversion continue at a scale visible in the currency market, rather than tapering after an initial burst;
• whether the traded ringgit moves toward the 4.40–4.20 forecast corridor during the second half of 2024, in the sequence the forecasts describe;
• whether BNM retains the "undervalued against economic fundamentals" framing, or quietly retires it as the market moves.

Each checkpoint maps to one pillar, and the mapping defines the failure modes. A thesis that stumbles on the flow pillar — repatriation that proves temporary — can still survive on the differential pillar, but more slowly and with a shallower correction than the 4.20 terminal forecast contemplates. A thesis that stumbles on the expectations pillar — the framing abandoned — loses its anchor entirely, because the remaining instruments then describe support for a currency whose target value no one official is willing to name.

Bottom line

The package reported on March 7, 2024 — a fifth consecutive OPR hold at 3%, a unanimous economist consensus around that hold, a new "undervalued against economic fundamentals" vocabulary, forecasts of 4.40 and an average of 4.38 stretching to 4.20 by the end of 2024, and a coordinated GLC and GLIC repatriation lever — reads as a monetary authority and a government deploying every non-rate instrument available to close a gap they had themselves diagnosed. The analytical lesson of the early-2024 ringgit story is compact: undervaluation is a diagnosis, not a cure. Rate differentials set the conditions under which a cure can work; coordinated flows and credible language are the cure itself. A currency described as cheap against fundamentals recovers when someone with size demonstrates that the cheapness is being priced out — and in Malaysia's case in 2024, that someone was a coalition of policy instruments rather than the market alone.