THE Association of Banks Malaysia (ABM) welcomes the Governments decision to allow the ringgit to operate in a managed float regime, dismantling the ringgit-dollar peg regime that had been in place for almost seven years since Sept 2, 1998.
Although Bank Negara did not disclose the trading band against the US dollar, we do not expect to see significant movements of the ringgit vis-a-vis the US dollar in the near term as the value of the ringgit will be maintained against a trade-weighted index of Malaysias major trading partners and not anchored to just single currency, its chairman Dr Rozali Mohamed Ali said in a statement yesterday.
Furthermore, as the ringgit remains non-tradable offshore, this would allow Bank Negara to maintain a tightly managed band for the ringgit. We expect the ringgit to appreciate in tandem with the yuan by about 2% against the US dollar, he added.
He said ABM viewed the dismantling of the peg as a very positive move.
Dr Rozali said in a environment where persistently high oil and commodity prices were building up pressure on inflation, while the economy moved on to moderating mode, it would not be appropriate for policy makers to tighten monetary policy through a hike in interest rate.
This is all the more so, given the fact that inflationary pressures have been driven primary by cost-push factors rather than demand pull factors, he said.
He added, with oil prices not likely to come down from the current range of US$55 to US$60 basis points, the central banks decision to allow the ringgit to appreciate within a managed band would help mitigate the impact of rising import prices.
This will also relieve the pressure on the Government to raise its oil subsidies further, he said.
The move to a managed float, Dr Rozali said, was very timely as exporters had already benefited tremendously from a low exchange rate for the past seven years.
That should have given them ample time to value add on their products and enhance on their operational efficiencies.
By now, they should be well equipped and ready to compete internationally on product quality rather than on a cheap currency, he said
On the other hand, those with heavy reliance on imports would be in a better position to compete as they were now able to import more machinery or equipment and even intellectual properties at more affordable prices, he added.
While some sectors of the economy may feel the pinch of a more expensive ringgit over the near term, the economy as a whole stands to benefit from a flexible exchange rate regime over the long term. Bernama