Suresh says currency-market liquidity issue must be addressed
PETALING JAYA: The annual tabling of the Supply Bill or proposed Federal Government budget is usually not the platform for announcing measures to boost the Malaysian currency market.
However, the ringgit’s performance in the face of domestic and external issues necessitates the implementation of market measures in tandem with longer-term policies under Budget 2016.
While the currency had strengthened recently, most analysts remained bearish on the ringgit due to a combination of weak commodity prices, uncertain exports and sentiment weighing on the country’s political outlook.
They expected the ringgit to continue trading at above RM4 to the US dollar in coming quarters, saying that the recent rally could be due to overselling in the past few months.
Independent forex strategist Dr Suresh Ramanathan said that beyond implementing mid- to long-term measures that would help the economy move up the value chain, policymakers should look into measures that could help support the ringgit in the coming months.
These market measures could be implemented in tandem with the budget to be tabled on Friday, where emphasis on the knowledge economy should eventually result in more value-added goods and services.
Suresh told StarBiz that the Government needed to be more proactive in implementing the market measures that could support the currency, referring to Indonesia, which had been transparent in announcing measures to support the rupiah.
“You need market mechanisms to solve this. How good and effective are these mechanisms? It’s very important you send out the right signals to the market,” he pointed out, adding that the right signals would help curb the further weakening of the ringgit.
Suresh reiterated that the ringgit continued to face a liquidity issue, pointing to the volatile trading of the currency as a symptom of the lack of liquidity.
“I feel that it’s the lack of market measures and not just fundamentals and sentiments that are affecting the currency.
“By providing liquidity, the ringgit will not weaken beyond the levels that it’s already in,” he said.
Among the measures he said that should be considered were cutting the overnight policy rate (which has stood at 3.25% since Bank Negara raised it by 25 basis points in July last year), reducing the statutory reserve requirement (the amount of funds commercial banks must keep interest-free with the central bank) that has stood at 4% since July 2011, providing higher interest rates for dual-currency deposits for Malaysians working/living overseas, bilateral currency swap agreements as well as compressing the buying and selling prices in the interbank market.
Suresh, a former forex and interest rates head with CIMB Investment Bank Bhd, said should the ringgit weaken to RM5 to the greenback, there would be more signs of economic destabilisation.
“The glue holding it all together is the currency and all the macroeconomic variables from growth, to inflation and the current account, will be affected, it’s not just about measures for the real economy,” he pointed out.
Suresh expected the ringgit to strengthen to RM3.70 should the market measures boosting liquidity in the market be implemented but continue to trade at between the RM4.25 and RM4.50 levels if policymakers do nothing to address the issue.
Not implementing at least one of the measures, he said, would eventually affect the real economy as the broad framework including variables such as growth, inflation and the budget deficit would not be sustainable.
“Address the liquidity issue before it gets worse,” Suresh said.