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