MAHATHIR WANTS ‘BOTTOMLESS’ RINGGIT TO BE RE-PEGGED AT 3.80 TO US$1 – BUT IS RINGGIT WORTH THAT MUCH? – WHAT MASSIVE CAPITAL CONTROLS WILL BANK NEGARA HAVE TO IMPOSE THIS TIME? – ALREADY TOO LITTLE & TOO LATE, MALAYSIA’S CENTRAL BANK RAISES ITS POLICY RATE BY 25 BASIS POINTS – A SURPRISE BUT TOO MOUSY MOVE TO ACHIEVE ANY EFFECT

Time to repeg ringgit to US dollar, says Dr M

Dr Mahathir Mohamad says the ringgit should again be pegged at RM3.80 to a US dollar following its recent slide.

PETALING JAYA: Dr Mahathir Mohamad has suggested that the ringgit should again be pegged at RM3.80 to the US dollar, a controversial policy the former prime minister introduced more than 20 years ago to stave off the Asian financial crisis.

Noting the ringgit’s recent slide against the dollar, Mahathir said it is fluctuating because its value is not fixed and guaranteed by the government.

As at 9.02am today, the ringgit stood at 4.3820/3860 to the US dollar compared with Tuesday’s close of 4.3800/3850.

“When we set the value of the ringgit at RM3.80 per US dollar, and we guarantee the supply of US dollars to anyone willing to pay RM3.80 for 1 US dollar, then the value of the ringgit will no longer fluctuate,” he said in a statement today.

“Even currency traders cannot devalue the ringgit by selling it in large quantities.”

Mahathir recounted how this was also an issue during the Asian financial crisis of 1997-98, when the value of the ringgit fell because of speculation by currency traders.

He pegged the ringgit at RM3.80 to the dollar in 1998 after blaming speculators for the plunge in Asian currencies, which led to a financial crisis across the region.

The peg lasted until 2005.

Mahathir noted that while his actions were initially criticised, financial institutions such as the World Bank and the International Monetary Fund later acknowledged that the policy halted fluctuations in the value of the ringgit and helped restore the country’s finances.  FMT

Bank Negara surprises with 25 basis point rate hike

KUALA LUMPUR: Bank Negara has decided to increase the overnight policy rate (OPR) by 25 basis points to 2% – its first rate hike since July 2020.

In a Monetary Policy Statement (MPS), the central bank said the ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.25% and 1.75%, respectively.

The latest move by Bank Negara is a contrast to a near-unanimous consensus of stable monetary policy. Polls by Reuters and Bloomberg suggested that Bank Negara is expected to keep its OPR unchanged at 1.75%.

These have partly cushioned the impact of the military conflict in Ukraine and the strict containment measures in China.

“Inflationary pressures have increased sharply due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US. Consequently, several central banks are expected to adjust their monetary policy settings at a faster pace to reduce inflationary pressures.

“The global growth outlook will continue to be affected by the developments surrounding the conflict in Ukraine, COVID-19, global supply chain conditions, commodity price shocks, and financial market volatility,” it said in the MPS.

For the Malaysian economy, Bank Negara said the latest indicators show that growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth.

“The labour market is further lifted by a lower unemployment rate, higher labour participation and better income prospects.

The transition to endemicity on April 1 would strengthen economic activity, in line with further easing of restrictions and the reopening of international borders. Investment activity and prospects have also improved, underpinned by the realisation of multi-year projects and positive growth outlook.

“However, risks to growth remain, which include a weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions, and adverse developments surrounding Covid-19,” it said.

Bank Negara said headline inflation is projected to average between 2.2% – 3.2% in 2022.

“Given the improvement in economic activity amid lingering cost pressures, underlying inflation, as measured by core inflation, is expected to trend higher to average between 2.0% – 3.0% in 2022,” it said.

Nevertheless, the central bank said upward pressure on prices would be partly contained by existing price controls and the continued spare capacity in the economy.

“The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures on administered prices,” it added.

Over the course of the Covid-19 crisis, the OPR was reduced by a cumulative 125 basis points to a historic low of 1.75% to provide support to the economy.

The unprecedented conditions that necessitated such actions have since abated, Bank Negara said.

“With the domestic growth on a firmer footing, the MPC decided to begin reducing the degree of monetary accommodation.

“This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability,” the central bank said.  ANN

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