KUCHING: Economists are suggesting the government let the natural business cycle (the ups and downs of the economy) control the changing value of the ringgit.
Carmelo Ferlito, an economist at the Centre for Market Education (CME), said when the government tries to control its currency reserves (money held by a central bank), it often leads to disastrous problems.
“When we talk about the government stepping in, it’s not just about trying to fix the value of the ringgit. The government needs to have a big picture plan for the economy. Right now, we can’t see that kind of plan,” Ferlito explained.
He also felt that the government has been inconsistent in its actions.
“They talk about encouraging businesses and letting them run on their own, things like opening up the market. But at the same time, they are also putting a lot of rules in place, like setting prices, giving out subsidies, and having strict rules for workers.
“This inconsistency sends a message that Malaysia is sailing without a map,” he said.
He added that not having a clear plan for the economy does not just make investors nervous, it also gives nearby countries an advantage, as they are actively making changes to make it easier to do business.
Adding weight to Ferlito’s stance, Jerome Kueh, an economist at Universiti Malaysia Sarawak (Unimas) believes that letting the normal ups and downs of the business world determine the best value for the ringgit is a better approach.
He is worried about the government getting involved in the currency market, which could disrupt its normal working and cause unintended consequence.
“Government involvement can also hurt the way people view the currency, making them less confident in its stability.
“Besides, messing with the ringgit could use up the country’s foreign money reserves. These reserves are important for keeping the currency stable and for public confidence,” Kueh warned.
Instead of the government directly getting involved, he suggested the government focus on putting in place economic reforms to encourage growth.
“These strategies might take some time to show results, but as the economy grows, the ringgit will change based on market movements. So, the government should focus on starting these reforms and keeping a stable foreign money reserve,” Kueh said.
The ringgit has been trading at lower values compared to a group of major currencies. In fact, looking at the performance of currencies from the beginning of the year until now, it has been the second worst-performing currency, right after the Japanese yen.
Specifically, the ringgit has depreciated by 4.5 per cent against the US dollar as of last week. This means that it takes more ringgit to buy one US dollar compared to earlier in the year.
The only currency that has seen a greater decline in value is the yen, which has depreciated by 5.9 per cent against the US dollar during the same period.
