KL may have to review currency peg: MIER<\/p>\n
Agence France-Presse, Kuala Lumpur<\/p>\n
Malaysia may have to review its six-year-old currency peg
\nagainst the dollar as the ringgit is about 15-20 percent
\nundervalued and import bills are rising, a private think-tank
\nsaid on Tuesday.<\/p>\n
Mohamed Ariff Abdul Kareem, executive director of the
\nMalaysian Institute of Economic Research (MIER), said pegging the
\nringgit against a basket of currencies would be more viable as it
\nwould allow greater flexibility and lead to a more stable
\nexchange rate.<\/p>\n
The ringgit's peg of 3.80 to the dollar, fixed as part of
\ncapital controls since 1998, \"does not reflect the true strength
\nand the strong fundamentals of the Malaysian economy currently,\"
\nhe was quoted as saying by Bernama news agency.<\/p>\n
As of Jan.13, the ringgit has weakened nearly 18 percent
\nagainst the euro over the past year, 10.2 percent against the yen
\nand also depreciated against regional currencies, he said.<\/p>\n
\"Judging by the shrinking dollar during the last 12 months,
\nthe ringgit is seen to be 15 to 20 percent undervalued,\" Mohamed
\nAriff said.<\/p>\n
While the peg had served its purpose to battle a recession
\nduring the Asian 1997\/98 financial crisis, he said economic
\nconditions had changed dramatically since then and Malaysia must
\nnot stick to the peg \"for the sake of having it.\"<\/p>\n
At the same time, he said he does not expect any policy shift
\n\"unless there is a breaking point\" that may force the government
\nto consider a peg review.<\/p>\n
The three possible \"breaking points\" would be if the euro fell
\nto 1.40-1.50 against the dollar, if the yen fell below 100 or if
\nthe Chinese yuan is revalued, he said.<\/p>\n
\"The trump card is actually held by China. If we revalue our
\nringgit and China does not, it will affect our exports abroad,\"
\nhe said.<\/p>\n
Mohamed Ariff said there is no such thing as an ideal exchange
\nrate regime and a \"managed float\" is probably the best option for
\nMalaysia now.<\/p>\n
In a report, MIER said the weak ringgit is a boon to exports
\nand certain sectors such as palmoil but there are concerns over
\nrising import bills for other industries such as national car
\nmakers like Proton and Perodua.<\/p>\n
If the ringgit is kept undervalued for too long manufacturers
\nmay become complacent and rely on the cheap currency to do their
\nwork for them.<\/p>\n
Some analysts have said it is time for the government to
\nremove the peg given the weakening dollar and Trade Minister
\nRafidah Aziz has said a review may be called for if Malaysia's
\ncompetitiveness is threatened.<\/p>\n
Prime Minister Abdullah Ahmad Badawi, who is also finance
\nminister, last week reiterated there were no plans to change for
\nnow but made it clear the government was willing to review the
\npeg if the situation merits it.<\/p>",
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