Wednesday, August 12, 2015

To peg or not to peg, and why some of us should stop bitching about the ringgit

Meanwhile, the greenback has been rising in anticipation of a US interest rate hike ... [in other words, not because of Najib Razak] - Australian dollar falls, The Guardina, 11/8

12/8/2015: The other night, a learned YB from an Opposition party told a group of us that Najib Razak should be pegging the ringgit already. "Dr Mahathir would have done it by now," said the YB. I stifled a chuckle. Until Dr M started making demands for Najib to step down as Prime Minister, the YB had no love whatsoever for the Old Man. I'll bet my bottom ringgit (sorry, I don't have any dollar) that once the Prime Minister has quit, Mr YB will go back to his Mahathir-bashing days.

Dr M announced the "unthinkable" move of pegging the ringgit at 3.80 to the dollar on 1 Sept 1998, the same day he sacked Anwar Ibrahim as his deputy. By then, our currency had fallen to 4.8 to the dollar. Yesterday the ringgit hit 3.96 against the US dollar [The Star, 11/8], lowest since the peg but long way to go to 4.80.

Thumbs-up to fundamentals
And that's not the only reason why pegging isn't necessary right now,  ex-banker Abdul Wahid Omar (pic), now Minister in the Prime Minister's Department, says in this Whatsapp message. The circumstances are very different back in 1998 compared with now. The fundamentals have changed. In a nutshell, AWO sums it up:



- Back in 1997/98, Malaysia had international reserves below USD30b sufficient to cover only 3.2mths of retained imports. 
- We had trade deficit (1994-1997); corporates were highly geared with many borrowing in USD when their income/assets were in MYR. 
- Now even after the recent outflows, our international reserves is more than 3 times larger at USD96.7b as at 31 July 2015 sufficient to cover 7.6 mths of retained imports. 
- Our trade surplus reached RM41b for 1st half 2015 notwithstanding the lower oil; commodity prices.
- Corporates' balance sheets are much healthier with minimal USD borrowings for those without matching USD asssets / revenue stream. 
- Our labour market conditions are stable with low unemployment rate of 3%. 
- Our banks are well capitalised with core Tier1 capital ratios of 12.5%, liquid; with good asset quality where net impaired loans ratio is at a low of 1.2%. 
- Banks, financial system are well regulated; supervised by BNM. 
- Our fiscal position continues to improve with budget deficit reducing from 3.4% of GDP in 2014 to a target of 3.2% in 2015. 
- We are still on track to achieve GDP growth of between 4.5% and 5.5% this year.
 
Rogue currency traders were the culprits in 1998 but what we are seeing now is the strengthening of the dollar against the world, not just the ringgit, we were told last night over sushi and sukiyaki by a former international bond trader whose clients were so filthy rich that USD700 million is what they might spend on stuff like converting their private airliners into their flying palaces. (Talk about Japanese, the ringgit has strengthened against the yen by a whopping 14 per cent! Read Malaysians are now currency experts? Goh Wei Lang, 11/8)

Once the US increases interest rates next month, the ringgit, along with other currencies, should stabilize, Mr Bond Trader says. He went on the explain how currency trading works and why bonds drive currency rates up or down. Do read up about US zero interest rate policy in Gross: Fed slowly recognising ZIRP has downside consequences, July 30; also Wiki on ZIRP].

Complicated, right? But some Malaysians, even though they can't manage their own finances properly, are experts in everything, from DNA to currency and back. As Mr Goh Wei Lang observes:

"... in just the past month, I saw how Malaysians transform from being constitutional experts, to aviation analysts and now economics.
Some even went as far as pushing the blame on UMNO and Najib. There's this group called Suara Rakyat who likes to say "other countries are doing better because UMNO is not there in their country".
Of course, when you have a narrow, myopic view, you will tend to miss out the fact that over the 5 year period,
•    Russian Roubles lost 114% against USD
•    Indonesian Rupiah lost 51% against USD
•    Indian Rupees lost 38% against USD
•    Norwegian Krone lost 37% against USD
•    Australian Dollars lost 24% against USD
•    Euro lost 20% against USD
•    Thai Baht lost 10% against USD"

I can understand where Mr YB from the Opposition is coming from: the Opposition wants Najib kicked out because that will create the perfect crisis that could very well spell BN's end in the next general election. At the same time, he also wants Najib to peg the ringgit because he's personally affected by the lower value of our currency against the dollar. But the rest of us who don't have children studying in America, don't travel regularly to the US, don't import goods from the US to re-sell here, and don't plan to buy a Harley any time soon ... should stop bitching. 


p.s. Mr Goh's A Piece of My Mind is back on my Other Blogs That Rock! I think he should be blogging more regularly. 

16 comments:

Anonymous said...


The fact that RM11 billion has been pulled out in just months by investors, do we need to wait for Mr Goh's voice to break and his testes to descend, or will he be addressing that as well?

Anonymous said...

Sir,

Based on my chit chat with investment bankers, if DSN step down as PM, there will be some slight improvement in RM-USD exchange rate. Because part of this current depreciation is about investors confidence (corporate governance, integrity, authorities failed to explain about this donation etc). That is the reason why RM depreciate in a larger quantum compared to our peers. I'm not an ecomomy expert but all this sort of opinion is poisoning our people and also shows bad sentiment to investors.

Really hope Gov can do something about this. Not just about the RM-USD depreciation but to address the trust deficit among the rakyat and investors.

Mohamed

Anonymous said...

Stupid....ringgit did not strengthen against yen....do some research

Anonymous said...

...so filthy rich that USD700 million is what they might spend on stuff like.....among others splash in anybody's private account just for the fun of it...

Anonymous said...

RE:"Once the US increases interest rates next month, the ringgit, along with other currencies, should stabilize,....".

Datuk - the ringgit should stabilise at RM4 to USD1 after that? is that considered good for the msian economy in the long term?

bebas said...

No doubt that the figures looks good and it seems as we malaysians living a good life. rocky, i'm sure you're living a good life cruising with your kids every weekend with your superbike. But, most of us doing everything that we can to gain an extra cents to cover the raising cost of living. We hate najib now because he make it hard for us. We're suffering down here. If we're happy and i don't think we will give a damn with what is happening right now.

Zack said...

Even if Malaysia were to peg Ringgit to USD, the BNM has to spend large amounts of reserves to buy and sell ringgit, dollar, etc.
China devalues its Yuan for the second time today and some expect it will begin a currency war among exporting countries. Now Malaysia is known as an exporting country. To some extend we benefit from depreciating ringgit. The concern now is imported inflation, which in turns affecting prices of other goods and services. But in today's globalized world where everything is interconnected, you can choose to who you do business. If US dollar is too high, start looking at other suppliers who can offer better and cheaper deal. That is my opinion.


Anonymous said...


Najib should be out because he is clueless on what to do. Impotent.

Politik politik jugak.

Anonymous said...

bro.. im doing biz in vietnam and some euro company
they do trade in USD..
now tell me why 1 shouldnt run my mouth about the currency..
mana bleh tahan harga if RM jatuh macam water slide..

menteri bleh laa ckp.. bukan duit poket dia keluar.. claim je gomen..

-camshial-

Anonymous said...

are you sure, rocky
1. if we werent bitching about the currency, government would already have a plan to overcome this currency problem
2. if we wait until next month, (after the US increase interest rates) we would go back to 3.2 in less than 4 months (currency went rogue in just 3 months).
3. if our currency at 4.0 point now, is good for the capital market and consumers confidince with the explaination "we can still survive in 7.6 months"
4. the current fundamentals are strong enough to hold until another year or another month.
5. using comparison of other major currencies (russian, norwegian, lol!) fell badly, ours has nothing to worry about and should be proud it fell less than those major currencies.

The said...

Statistics, ah statistics. You can make statistics jump over any hoop, depending what you want to show. It is disingeneous to show the currency movements over 5 years. Why not show the decline over the past month when the 1MDB scandal was first revealed to the world? Or if you want to pick a longer time horizon, why not pick June 1973 as the base year when 1MYR = 1SGD?

A.Z said...

Dato'

We better revisit your blog and see how prices of common consumer goods react to the depreciating RM.

You know things like infant formula, onion, meats, flour, printing materials, vehicle spare parts, coal & gas for power plants, etc...

You can bet your RM in 3 months even these items will go up and surprise-supise..the Munster in charge will say it's because of the depreciating RM

Anonymous said...

So you talk about (like that other dummy you quoted) that the ringgit appreciated against some other currency. Is that something to rejoice? If we or even the world traded in those currency you might have a point but the world runs on dollar. Its a pity that our reserves arent in rupee or yen, right? You should get a life bro. If you want to play charades, get lost. The real reason for this farce is political unstability. Thats why droves are leaving. Why play this dumb game? Econ 101 has the answer no need to get technical if you arent able. Najib is the cause. Simple. Hard to digest or paid to turn a blind eye? And quit bitching about other currencies when all that matters is ours and dollar $$$$. Try harder rocky

Econ graduate

Anonymous said...

DON'T PATRONISE US LAH!

I may not be an instant currency expert. But i sure can tell you how it has/will impact me as ordinary citizen.
Hello, rocky, food bills gonna go up lah. We import a lot of our food. Next week aku kena pi grocery shopping boleh potong jari klu harga oats ke, sabun ke, syampu ke tak naik.
Kami rakyat biasa mana ada beli imported branded goods, toksah nak kata birkin bag, pi overseas cuti2 pun tak toksah nak kata cruising in the south of france on the Tatoosh.
Ubatan mcm mana. Tak ke bnyk dari nya di import? Ko tau tak koyok (medicated plaster) pun dah naik sebab ia dtg dari luar. Mak aku kena mkn ubat utk sakit perut dia, med itu dtg dari US. Tambah lagi gst, dan 3%-5% ambil-kesempatan-"tax". Tak di beban kami di bawah ni?
Jadi ko nak ckp apa?
DON'T PATRONISE US!
If we wish to bitch, hak kami lah. Gomen senyap sunyi, FM-cum-PM takde pun menunjuk kan akan mengambil langkah to allay our fears. Zaman Tun dulu, krisis kewangang tapi rakyat rasa confident. I can still remember him explaining to the rakyat.

Oh btw, abang la (mat bangla) potong rumput rumah aku yg sekangkang kera tu pun dah up harga dia. Dulu rm30 la ni minta rm45. Dia pun kena up la, sbb nak remit duit kat kampung dia kan?

Ko nak sokong najib, tu hak ko. Tapi jgn ajak kami bodoh sekali. kbai

Anonymous said...

Yes, I agree; we should stop complaining and be positive about something. While you're at it, Bru, how about a post on Merdeka?
Can't help noticing how deathly silent it is when in the Merdeka month, there should be preparations, rejoicing and celebratory mood all around.

farha

Bru said...

Farha,
Perhaps you have lost that patriotic feeling. Take a break, ride a bike to Myanmar or somewhere so you might discover the love for our Malaysia. Or just go out a little bit more.
But thanks if you're suggesting that a posting on Merdeka by me would have perked you up!

Anon 12.59 pm,
Kau ni lah yang buat Melayu dipanggil pemalas. Potong rumput kat rumah kau yang "sekangkang kera" tu pun kau suruh Mamat Bangla tu buat? Lepas tu komplen dia naikkan harga sampai 50 peratus dari RM30 hingga RM45. Dah lah malas kau ni beb, bodoh pulak! Lepas tu nak komen pasal nilai matawang?! Poorah!
Zaman Tun dulu kau ingat tak ada orang yang malas-bodoh? Ramai beb. Tapi Tun bijak. Najib bijak jugak tapi taklah sebijak Tun. Masalah kita ramai orang macam kau yang ingat dia lebih cerdik dari orang laiin, termasuk Najib :-)

Econ Grad 9.13 pm,
http://www.telegraph.co.uk/finance/economics/11808002/Yuan-devaluation-breaks-last-line-of-global-economic-defence-warns-top-economist.html
Maybe this article can help you when you re-sit for you Econ 101 ... Good Luck!

Dear Bebas,
Biking is a cheap hobby. We went to Endau Rompin for 2 nights and 3 days on our bikes and my kind and I spent less than RM400 (that's under USD100 for two adults!). Malaysian petrol is still one of the cheapest in the world. The air is free. We boiled our own water and Maggi Mee and we got our supplies from the Orang Asli. And, alhamdulillah, motor kitorang tak mengalami apa2 kerosakan ...
You should try it. Forget golfing ...