Thursday 17 July 2003

Ringgit 'undervalued'

It is a good time now for Malaysia to lift its five-year-old ringgit peg of 3.80 to the dollar because the currency is undervalued and in a position of strength, a private think-tank said yesterday.
The Malaysian Institute of Economic Research executive director Mohamed Ariff estimated that the ringgit was around 10 per cent undervalued and would definitely appreciate if the peg was removed.
But the government is unlikely to do so because of pressure from the competitive Chinese yuan which is around 20pc undervalued, he said.
"If you depeg now, the ringgit will definitely appreciate. There is no doubt about that, so it's a good time in that sense but there are many other considerations," he said.
"China is a major competitor to us... much depends on what China does."
A weak ringgit is right now a boon to the economy as it gives the country a competitive edge and helped mitigate some of the impact from the undervalued yuan, he said.
Mohamed Ariff said Prime Minister Mahathir Mohamad's planned resignation in October after 22 years in power was unlikely to have any bearing on the peg.
"Barring all those changes outside, I think the ringgit peg will probably stay here for some time, probably a year or two later. I don't expect any changes in the regime just because (Mahathir) is leaving," he added.
Malaysia introduced the peg as part of capital controls to fight a recession in 1998 during the Asian financial crisis.