All eyes on ringgit after PM's remarks
MALAYSIA'S latest signals to allow the ringgit to be traded offshore will allow foreign investors access to pent-up Malaysian assets since the Asian financial crisis, says a local currency strategist
However, rules and regulations must be put in place before offshore trade in the currency is permitted.
"This is to ensure that there is no foreign abuse of the privilege," CIMB Investment Bank's head of regional rates and forex strategist, Suresh Kumar Ramanathan, said when commenting on Prime Minister Datuk Seri Najib Razak's remarks on the ringgit during an interview with CNBC.
Najib had said that the government was open to allowing the ringgit to be traded offshore if the move could help the economy.
His remarks came on the back of a strong ringgit, which traded at a 13-year high to close at 3.100/1030 against the dollar yesterday.
CIMB expects the ringgit, which weakened signficantly last year, to appreciate to 3.05 by the year-end.
According to Suresh Kumar, the ringgit's appreciation pace currently makes it the second strongest, after the yen, this year.
Malaysia had banned offshore trading of the ringgit at the height of the Asian financial crisis in 2008.
Although capital controls on the ringgit were lifted in 2005 in tandem with the yuan, the internationalisation of the ringgit - considered the last vestige of the capital controls - is still not allowed.
Bank Negara Malaysia recently introduced measures that liberalised the trade account, but left the capital account - which is influenced by foreign portfolio flows - closed.
Market watchers have felt the need for the ringgit to be traded internationally again.
However, the risk of speculative attacks, which the ringgit and other regional currencies were subjected to during the Asian financial crisis, has been one of the reasons the monetary authorities are still holding a lid on the currency.
Apart from the healthier fundamentals of the Malaysian economy now, including foreign reserves, they felt that the ringgit was now a lot stronger than during the financial crisis.
Suresh Kumar cited the example of Singapore where the authorities do not allow one to short more than S$5 million (RM11.6 million) per transaction on the swap side.
Although not all that restrictive, it is important to have a tracking mechanism in place which integrates the local market with the international market to check on speculative activity.
"Just like the limits Singapore has in place, we can also introduce them onshore. Allow offshore markets to have access onshore (foreign exchange market) to short the ringgit at a limit," he said
However, rules and regulations must be put in place before offshore trade in the currency is permitted.
"This is to ensure that there is no foreign abuse of the privilege," CIMB Investment Bank's head of regional rates and forex strategist, Suresh Kumar Ramanathan, said when commenting on Prime Minister Datuk Seri Najib Razak's remarks on the ringgit during an interview with CNBC.Najib had said that the government was open to allowing the ringgit to be traded offshore if the move could help the economy.
His remarks came on the back of a strong ringgit, which traded at a 13-year high to close at 3.100/1030 against the dollar yesterday.
CIMB expects the ringgit, which weakened signficantly last year, to appreciate to 3.05 by the year-end.
According to Suresh Kumar, the ringgit's appreciation pace currently makes it the second strongest, after the yen, this year.
Malaysia had banned offshore trading of the ringgit at the height of the Asian financial crisis in 2008.
Although capital controls on the ringgit were lifted in 2005 in tandem with the yuan, the internationalisation of the ringgit - considered the last vestige of the capital controls - is still not allowed.
Bank Negara Malaysia recently introduced measures that liberalised the trade account, but left the capital account - which is influenced by foreign portfolio flows - closed.
Market watchers have felt the need for the ringgit to be traded internationally again.
However, the risk of speculative attacks, which the ringgit and other regional currencies were subjected to during the Asian financial crisis, has been one of the reasons the monetary authorities are still holding a lid on the currency.
Apart from the healthier fundamentals of the Malaysian economy now, including foreign reserves, they felt that the ringgit was now a lot stronger than during the financial crisis.
Suresh Kumar cited the example of Singapore where the authorities do not allow one to short more than S$5 million (RM11.6 million) per transaction on the swap side.
Although not all that restrictive, it is important to have a tracking mechanism in place which integrates the local market with the international market to check on speculative activity.
"Just like the limits Singapore has in place, we can also introduce them onshore. Allow offshore markets to have access onshore (foreign exchange market) to short the ringgit at a limit," he said
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