KUALA LUMPUR: An independent economist says a more concerted effort alongside new measures are needed to strengthen the ringgit, as the weaker local note can lead to higher inflation.
“My concern is the weaker ringgit will deflate the economy and the inflation rate will go up. Therefore, we need to introduce another strong ringgit policy,” Dr Suresh Kumar told Bernama after the Post Budget 2018 Dialogue at the University of Malaya Faculty of Economics and Administration here today.
Prime Minister Najib Razak put the 2018 inflation forecast at 2.5-3.5%, and 3.0-4.0% for 2017 during the Budget 2018 announcement yesterday.
According to Suresh, the ringgit has remained in a far from favourable level despite the various measures unveiled by Bank Negara Malaysia (BNM) last December to better support it.
“I thought it would move toward 3.80 against the US dollar. However, until now, the ringgit is still trading at the 4.20 level,” he said.
Suresh also said it was important to look into the elements pressuring the local currency.
“I’m talking about the ringgit to US dollar conversion for the capital account, which right now, is only applicable to Malaysia’s current account,” he said.
Asked if the ringgit should be internationalised to attract more demand for it, he said the move was unnecessary, as it would not affect the currency’s performance significantly.
Last year, the central bank adopted a prudent monetary policy that included the management of the exchange rate, allowing residents to freely and actively hedge their US dollars and Chinese renminbi with an exposure of up to a limit of RM6 million per client per bank.
Apart from that, residents with domestic ringgit borrowings, were free to invest in foreign currency assets both onshore and abroad, up to the prudential limit of RM50 million for corporates and RM1 million for individuals.
Another measure was to allow exporters to retain only up to 25% of export proceeds in foreign currency and the remaining 75% in ringgit.