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Monday, June 15, 2015


 >>>I AM doing ONGOING FOLLOW-UP to my 4-parter in the ABYSS SERIES, Why I say Malaysia Is Moving Towards the Abyss... IV

CUt&PASTRy, cun?

FROM's kinibiz:

ets  |  JUNE 15, 2015 11:00 AM

Ringgit continues to slide as BNM’s optimism is not shared

Story by

Zeti Akhtar Aziz
Zeti Akhtar Aziz
Malaysia’s ringgit is sliding toward its fixed exchange rate of a decade ago and central bank assurances the weakness will prove temporary aren’t convincing everyone.
Macquarie Bank Ltd is reviewing its year-end forecast of 3.75 per dollar after the currency sank last week to within 0.7% of a 3.80 peg imposed by former Prime Minister Mahathir Mohamad during the 1998 Asian financial crisis. Westpac Banking Corp and Macquarie say it’s just a matter of time before that threshold is tested, given waning demand for emerging-market currencies as the US moves closer to raising interest rates.
The decline prompted Bank Negara Malaysia governor Zeti Akhtar Aziz to say last week that the exchange rate wasn’t consistent with the nation’s economic fundamentals, which are “markedly different” from those at the time of the crisis. While a weaker currency will help revive exports, it also threatens to add to inflationary pressure following the implementation of a new goods and services tax in April.
“There are still levels to look at higher than 3.8,” said Nizam Idris, head of currency and fixed-income strategy at Macquarie in Singapore, who’s been covering the foreign-exchange market for two decades including a stint at UBS AG. “How much is enough is the big question.”
The drop in the Southeast Asian nation’s foreign-exchange reserves will limit Bank Negara’s capacity to defend the ringgit, according to Macquarie and Westpac. While the holdings climbed to US$106.4 billion (RM399.56 billion) in May from a four-year low of US$105.1 billion in March, they have fallen 8% since December.
Soros implicated
Malaysia imposed capital controls in 1998, when the ringgit plunged to a record 4.885 per dollar in January of that year and reserves stood at about US$20 billion. The currency tumbled 35% in 1997 in the wake of the Thai baht’s collapse, prompting Mahathir to ban offshore trading in the currency, blaming US billionaire George Soros and other “rogue speculators” for the ringgit’s weakness.
Repegging the ringgit is one way to stabilize the exchange rate, Mahathir was reported as saying in a Star newspaper report on Thursday, even going so far as to say the central bank should consider going back to the gold standard, a system prevalent until the early 1970s under which a unit of currency was convertible into a fixed amount of the commodity.
The currency’s losses have been compounded by a 43% drop in Brent crude prices from a 2014 peak, worsening public finances in Malaysia, the only net oil exporter among Asia’s major economies. Overseas shipments fell in April, this year’s third monthly decline, and inflation quickened to a four-month high of 1.8% as the 6% GST was introduced.
“Fundamentals will prevail once the uncertainty affecting market sentiment subsides,” Zeti, who helped harness the currency during the crisis when she was assistant governor, said in an e-mailed response to Bloomberg questions on June 8. Bank Negara “stands ready to maintain orderly conditions in the foreign-exchange market,” she said.
‘Striking distance’
Ringgit Falling Drops Generic 02 091214The ringgit fell 5.3% to 3.7635 per dollar in the past month, Asia’s worst performance, and analysts are once again lowering end-2015 projections. The median estimate in a Bloomberg survey was 3.72 at the end of last week, having been cut in all bar one of the last eight months.
While the ringgit is within striking distance of the peg, the likelihood of the currency breaching 3.8 is “not a matter of if, but a question of when,” said Jonathan Cavenagh, a currency strategist at Westpac in Singapore. “Bank Negara’s ability to fight the stronger dollar trend is being diminished somewhat compared to the past few years.”
The ringgit is vulnerable to capital outflows from higher US interest rates as central bank data show global investors hold 32% of the nation’s sovereign bonds, compared with 18% for Thailand. The slump in Brent crude prompted the government to lower 2015’s growth target to a range of 4.5% to 5.5 percent in January, from as much as 6%.
Trade balance
A protracted drop in exports may shrink the current-account surplus, which was RM10 billion in the first quarter, the biggest since June 2014. It dwindled to RM5.7 billion in the previous three months, the least since June 2013, as Brent slumped 39% in its worst quarterly performance since 2008.
Fitch Ratings said in March that there’s more than a 50% chance it will downgrade Malaysia’s A- credit rating at a review due before the end of June. The company cited falling energy prices, pressure on the current account and state investment company 1Malaysia Development Bhd.’s debt as factors.
“As with other currencies, the ringgit will face a number of pressures including a strong dollar and higher US rates,” said Mitul Kotecha, head of Asia Pacific foreign-exchange strategy at Barclays Plc in Singapore, who predicts the ringgit will end the year at 3.95. “Given that Malaysia is still the only net oil exporter, any rally in oil prices may alleviate some of the pressure on the currency.”
— by Liau Y-Sing


Is the declining ringgit temporary? – Ramon Navaratnam

The Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz publicly stated on June 8 that “the current weaknesses of the currency will be temporary”.
We all hope that her judgment is right. But we cannot, in fairness, hold her to her current assessment, given the growing uncertainties at home and abroad.
Nevertheless, it is difficult at this stage, to accept that the declining ringgit is temporary feature, for the following reasons:

1. The ringgit has been declining steadily and has reached its weakest point in the last nine years. It is not a sudden slip but the ringgit could be showing signs of a declining trend on a more permanent basis. 2. The ringgit is driven down by both weakening economic fundamentals and uneasy sentiments as well. Thus it is important that we should not under play the weak fundamentals or down play the soft sentiments, for they need not be temporary phenomena, but more longer term in nature.
Weak fundamentals
The economic fundamentals, although currently good, are not that strong in the longer term. The claim of strong fundamentals cannot be assumed to be sustainable and permanent either.
For instance, the budget deficit is still under strain, the balance of payments need not be buoyant with the continuing low energy prices.
This is aggravated by the higher import prices, due to the fall in the ringgit. The national and personal debt burdens still weigh heavily on our economic shoulders.
Furthermore, private capital outflows continue to be one of the highest in the world and the skilled brain drain is persistent.
Corruption is rife and this adds to costs, while undermining public policies and worsening the income disparities, poverty and inflation too.
These are fundamental weaknesses which have to be addressed to strengthen investment confidence and business sentiments.
Soft sentiments
The present political environment, is obvious, generating negative sentiments. Malaysians generally are not happy and even fed up with all this unnecessary and unhealthy politicking.
Perhaps many politicians enjoy these political games, but most Malaysians are very tired of this distraction from the main purpose of government and the opposition, which is to deliver on their election promises, to benefit all Malaysians and to promote a better Malaysia.
Instead, everyday we rise to read the mass media of a lot of wasteful discussion on political diatribe and personal character assassinations. This is immature and intolerable !
How can then there be positive sentiments and national confidence? That is why capital and brain power flow out continuously.
Graduates by the thousands come out from our universities ill equipped to find decent jobs.
We have flip flopped on the teaching of Science and Maths in English. How well then can our graduates contribute highly to the economic development and to nation building?
In fact, there will be widening income disparities between graduates who have a command of English and those who learn a smattering of English.
The rich will then become richer and the poor will remain poor. This could cause social problems and disunity.
Racial and religious extremists are increasing and good citizens are called seditious names.
Many from both groups also get away with impunity Safety and security is said to be improving, but people perceive it as declining.
The 1MDB problems are being investigated, but before the outcome is known, there are those who choose to relentlessly attack the leaders without respite.
Could there not be a decent moratorium that could show dignity, gentleman-liness and good grace?
No wonder sentiment is so low and national depression and disgust so high. All this will erode the economic fundamentals and weaken confidence and the currency, which could continue to decline.
For the above reasons, many Malaysians and foreign friends, may share my view that the ringgit is not going to strengthen in the near future.
Its consistent decline, to the bad times we experienced in 1997, is unlikely to be temporary, but more likely to be more permanent.
I almost fear that the ringgit’s decline could reflect our weakening socio-economic fundamentals and the sad sentiments in our beloved country today.
Unless there is real transformation in our policies and practices and the 11th Malaysia Plan is set on a more dynamic course of reforms, I believe that we may face continuing pressure on the ringgit.
This could make it more difficult to regard the ringgit decline, as only a temporary feature.
In fact we are probably witnessing an unfortunate trend towards a weaker ringgit, well beyond a temporary phase.
We may thus have to revise our analysis and be prepared to face more challenging times ahead.
In the meantime, the government should appoint an independent committee made up of professionals, to make recommendations to the government on how to ensure that the declining Ringgit is only temporary and does not develop into a permanent trend , which would seriously undermine our country. – June 11, 2015.
* Tan Sri Ramon Navaratnam is the chairman of the Center of Public Policy Studies (Asli).
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.
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