KL may adopt managed float system by June 2005<\/p>\n
Eileen Ng, Agence France-Presse, Kuala Lumpur<\/p>\n
Malaysia may abandon its six-year-old peg of 3.80 ringgit to
\nthe dollar and revert to a managed float system by June 2005 if
\nChina loosens its own fixed currency regime, economists said on
\nThursday.<\/p>\n
Widespread speculation of a shift by Prime Minister Abdullah
\nAhmad Badawi in exchange rate policy fueled a sharp rise on the
\nstock market, which shot up 2.2 percent on Wednesday, to breach
\nthe crucial 900-point psychological barrier.<\/p>\n
Foreign fund buying on Thursday pushed the market to a near
\nyear-high of 918.95 points before profit-taking trimmed gains to
\n0.31 percent at 904.48 points.<\/p>\n
Economists said rising anticipation that China may revamp its
\ncurrency peg and allow the yuan to rise in value following its
\nfirst interest rate hike in nine years last month reignited talk
\nthat Malaysia may follow suit as its economy had recovered
\nstrongly and exports are at a record high.<\/p>\n
The peg, fixed in September 1998 to stem capital flight during
\nthe Asian financial crisis, has served its purpose and the
\nringgit should be allowed to climb, they said.<\/p>\n
Singapore-based DBS Bank Ltd. senior economist Wong Chee Seng
\nsaid a yuan revaluation or band-widening would have an \"avalanche
\neffect\" on regional currencies including the ringgit.<\/p>\n
\"We think there is a high probability over the next six months
\nthat Malaysia will abandon the peg regime on favor of a managed
\nexchange rate regime based on a weighted basket of currencies,\"
\nWong said.<\/p>\n
A stronger ringgit will revive domestic investment, help
\ncontrol inflation and speed up the consolidation of the
\ngovernment's balance sheet, he added.<\/p>\n
Abdullah, who is also finance minister, last month said the
\ngovernment was in close touch with China's monetary authorities
\nand closely monitoring developments there. Central bank officials
\nwere not available for comment on the issue.<\/p>\n
Malaysia is treading cautiously to ensure any change to the
\npeg will not affect its economic competitiveness as growth is
\nprojected to slow down to 6.0 percent in 2005 from 7.0 percent
\nthis year. It projects exports to hit 514 billion ringgit (US$135
\nbillion) in 2005.<\/p>\n
The government has said it would review the peg if there was a
\nswing of 20 percent either way in regional currencies, or if the
\neuro and yen strengthened beyond 1.40 and 100 to the dollar
\nrespectively.<\/p>\n
Late Thursday, the euro was continuing its record run against
\nthe dollar, trading at within sight of 1.31 levels, while the yen
\nwas at 7-month highs of around 104 to the U.S. unit.<\/p>\n
UBS in a report cited the dollar's weakness and expectations
\nthat China will free up its yuan system in predicting the removal
\nof the peg by the first half of 2005. Speculative capital flows,
\nit added, may \"test the (central) Bank Negara's resolve to
\nmaintain the peg.\"<\/p>\n
SBB Securities economist Manokaran Mottain said de-pegging the
\nringgit could cause some volatility in the short-term but the
\nbenefits far outweighed the cost.<\/p>\n
\"With our build-up of international reserves, strong growth
\nand exports, it is the best time now for us to move towards a
\nflexible regime,\" he said.<\/p>\n
\"It's been too long for an advanced developing country to have
\na fixed peg. A managed float system is the best compromise for
\nnow because it won't upset the manufacturers nor the economic
\nrecovery process.\"<\/p>\n
Most economists put the ringgit's fair value at between 3.30
\nand 3.70 ringgit.<\/p>\n
Singapore's second top bank, United Overseas Bank (UOB) said
\nthere was speculation that the yuan could climb by three to five
\npercent within the next six months.<\/p>\n
Although there was little domestic pressure, it said Malaysia
\ncould tap its economic strength to change the peg which would
\nendorse Abdullah's market-friendly leadership.<\/p>\n
At the same time, however, UOB said \"current capital
\nrestrictions are likely to stay as most Asian central banks have
\nput in place some sort of forex restrictions to ward off
\nspeculators' activities.\"<\/p>",
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