MIER's Views On The Ringgit

I try not to post articles and make no comments on them, but I have posted on the ringgit and MIER's views are worth reading.

KUALA LUMPUR, April 16 — The Malaysian Institute of Economic Research, describing the ringgit as still undervalued, expects the local note to break the RM3 mark against the US dollar by year-end.

MIER executive director Prof Datuk Mohamed Ariff said today the expectation of a stronger ringgit is due to the strong fundamentals of the Malaysian economy.

"The Malaysian economy is one of the strongest in the region. It is growing increasingly resilient, mainly attributed to the strong financial sector, and that's why the confidence level is high," he told reporters after the MIER Corporate Economic Briefing here.

Mohamed Ariff felt there is no reason for the local currency to grow weaker, but rather appreciate to RM2.80 in the next two to three years.

"It is still undervalued and the ringgit should really get back to a level which is commensurate with the fundamentals. We believe the ringgit should continue to appreciate, and probably the central bank should let the ringgit rise even more by removing some of the remaining controls," he added.

According to him, the ringgit is not completely free to move in the sense that Bank Negara Malaysia "still keeps some controls on it," especially in maintaining the ban on offshore trading.

"If you unshackle the ringgit from those kinds of controls, the ringgit can fly higher," he contended.

Asked when MIER expects the central bank to make such a move, Mohamed Ariff replied: "Right now the confidence level is very high, and this is a question you should ask them, but my recommendation is the sooner we do it the better."

A stronger ringgit, he argued, is good for bringing investments into the local stock market and does not necessarily mean that exports will become uncompetitive.

"Exchanges for other currencies are also rising, and if you look at it in real effective terms, the ringgit is still stable as it was in 2000. It hasn't really appreciated, so we are not really losing out in terms of competitiveness." On the other hand, Mohamed Ariff said, the issue here is that many do not want to see the US dollar sink as most countries have vested interests in the greenback.

Many countries have dollar-denominated assets and if the US dollar is to melt, there will be huge capital losses and this is something no country wants to let happen, he explained.

"Secondly, there is no substitute for the dollar as an international currency. Hence a stable dollar is needed for stable transactions and to save the value of the external reserves. The dollar seems to be taking one step forward and two steps back, that's why the adjustment is slow.'

On when the greenback is expected to stabilise, Mohamed Ariff expected much of the adjustments to be done in the middle of 2009.

He said the US may be able to do this is it can bring its balance of payments deficit down to three per cent of Gross Domestic Product from over five per cent currently, and that if there is a change of government, this may

bring about major changes in US foreign policy. — Bernama

p/s photo: Kristy Yung