Forex intervention bad for ringgit in the long run, PKR man warns

Dr Fahmi Ngah warns that prolonged currency intervention would eat away at the country’s foreign reserves. — Picture courtesy of PKR
Dr Fahmi Ngah warns that prolonged currency intervention would eat away at the country’s foreign reserves. — Picture courtesy of PKR

PETALING JAYA, July 28 ― Malaysia’s central bank cannot impose prolonged currency intervention to bolster the ringgit’s flagging performance, as it could eventually erode the country’s foreign reserves, a PKR man claimed today.

Dr Fahmi Ngah, the director of the party’s investment and trade bureau, acknowledged that there is a need for “some sort of intervention” in the short term but warned that prolonged intervention would eat away at the country’s foreign reserves.

“Concurrent with Bank Negara actions, we must take measures to counter the very negative perception of domestic and foreign investors,” he said at a news conference.

“The only positive way forward is to tackle corruption and stop the undue influence of politics in the economy,” Fahmi said.

Currency or foreign exchange intervention is a mechanism where a country’s central bank buys or sells their own domestic currency to raise or lower rates on the foreign exchange market.

The ringgit has been rated as the region’s worst performing currency over the first half of this year, with its value having dipped below the Asian Financial Crisis peg of 3.80 to a dollar.

Fahmi stressed that currency intervention is at best a short-term solution to prop up the local currency while the federal government works on more permanent solutions.

This includes taking urgent and decisive action to deal with the multi-billion ringgit 1Malaysia Development Berhad (1MDB) fiasco to restore confidence in Malaysia’s economy, he added.

Bureau chairman Wong Chen, meanwhile, urged Putrajaya to form a pre-crisis committee to deal with a possible repeat of the Asian financial crash of the late 1990s.

He noted that it is only makes sense to be prepared for any fiscal eventuality, even if Malaysia has not reached a crisis stage as of now.

“That's why we are asking for a pre-crisis committee to look at pre-emptive measures and that should involve the Treasury and the Bank Negara and the Associations of Banks to advice, not just the Cabinet but involve the Parliamentarians from the government and also from the Opposition,” he said.

The Malaysian Foreign Exchange reserves had plummeted to US$100.5 billion (RM383.3 billion) with the ringgit weakening to a 16-year low of 1 US dollar to RM3.81.

During the Asian Fiaancial crisis in 1998, Malaysia's foreign exchange reserves bottomed to USD 20 billion and 1 US dollar was pegged to RM3.80 in September 1998. 

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