Sunday, May 25, 2008

Ringgit's Valuation And Movements

Two days ago, Pak Lah publicly refuted in Tokyo at an international forum the American Treasury's claim that the ringgit has been undervalued. Pak Lah did the right thing and he served it right on the Americans. The United states has been pressurising the Asian nations to appreciate their currencies at a faster pace in a hope to help the global giant to alleviate its alarming trade deficit problem.

Way back on July 20, 2005, Pak Lah's government made a dramatic move to unpeg the ringgit with the dollar. Coincidentally, China announced its shift away from its fixed exchange policy with the dollar to that of a managed float policy just hours before Malaysia made known its change of foreign exchange policy. Apparently, Malaysia moved in tandem with China, although Pak Lah flatly denied it.

In a matter of less than three years, ringgit has appreciated against the dollar by more than 25%. This weighs heavily on exporters, as one prominent entrepreneur poured out to me at a church function.

But Bank Negara Malaysia is adamant to let our currency to go uptrend in a move to contain the worsening inflation in Malaysia.

Officially, based on CPI, Malaysia's inflation rate is presently at 3%. BNM has options open either to jack up our rate of interest or to let ringgit to appreciate against the greenback.

Considering the bearings it has on our GDP growth if the interest rate is raised, BNM holds preference to float upwardly the ringgit.

Strong ringgit policy is nightmarish to the big exporters for a very simple reason: Malaysian products are now priceier in world markets.

Pasted herewith is my article on the trend of the ringgit. It came out in The Chinese Methodist Message No. 673 dated January 20, 2008.

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