Every central bank communicates. The good ones communicate clearly. The less good ones communicate in a way designed to manage perception rather than convey information. Bank Negara's recent communication on the ringgit sits closer to the second category than the first.
The repeated use of the word "stability" to describe a currency that has lost 6% against the dollar over twelve months is a textbook example of language doing work the data cannot. The currency is not stable. It is depreciating, slowly, in a controlled fashion. Those are different states. Treating them as equivalent is what allows operators to plan their cost base on the wrong assumption.
A clear depreciation message would let importers plan their pricing, exporters hedge their receivables, and savers reposition their portfolio. The stability message instead encourages everyone to do nothing, on the assumption that the current rate is the new normal. The current rate is rarely the new normal.
We are not arguing for panic. Central banks rightly avoid panic. We are arguing for a different word. Direction, with confidence intervals, would be more useful than stability without them. The market knows the ringgit is weakening. The market does not know how fast or how far. The communication that would help is the one that addresses the second question, not the one that denies the first.
Every operator we have spoken to in import-heavy sectors has hedged less than they should have, because the communication discouraged them from believing they needed to. The cost of that under-hedging is going to show up in their next two quarterly results. Some of them are not going to recover from it.
