Expert: Removal from US watchlist shows balanced policies
KUALA LUMPUR: The United States’ decision to remove Malaysia from its “monitoring list” of trading partners whose currency practices call for closer attention, shows that Putrajaya’s economic and foreign exchange policies are viewed as balanced and transparent.
The move means Malaysia no longer meets the US Treasury’s criteria for close monitoring, reaffirming the country’s commitment to policy management that is aligned with international norms, says an economist.
“While inclusion on the monitoring list is not inherently negative, it does entail heightened scrutiny, reputational risk and diplomatic pressures which can deter foreign investment and affect trade relations,” said Mohd Sedek Jantan, UOB Kay Hian Wealth Advisors’ head of investment research.
The three criteria for a nation to be placed on the monitoring list are a trade surplus with the US of at least US$15bil, a current account surplus of at least 3.0% of gross domestic product (GDP) and persistent, one-sided intervention in the foreign currency market for at least eight months during a year, with net purchases totalling at least 2.0% of an economy’s GDP over 12 months.
Malaysia, which has been on the list since May 2019, had come close to being removed in June this year but needed further cuts in the trade surplus with the US before Thursday’s decision.
Mohd Sedek told Bernama that Malaysia’s removal from the list allows the country to reinforce its image as a transparent and cooperative trade partner.
“Malaysia can reduce concerns of unfair trade practices, facilitating constructive trade dialogues,” he said, adding that Putrajaya needed to maintain sustainable economic policies and keep trade and current account balances under control.
“Malaysia also needs to restrict currency interventions,” he said.
Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour stressed that Malaysia had never used its exchange rate to gain a competitive advantage in the market.
In welcoming the move, the governor said the ringgit was a market-driven currency which should reflect the fundamentals of the nation’s economy.
Abdul Rasheed said the ringgit appreciated against the US dollar by 14.9% in the third quarter and 3.1% over the year as at Nov 13.
“The ringgit’s performance in the third quarter was mainly driven by the US Federal Reserve’s shift towards a monetary policy easing stance,” he told a press conference on the third quarter (3Q) 2024 GDP.
“Malaysia also saw an increase in the average daily forex turnover from US$15bil to US$18.2bil year-to-date.
“The ringgit depreciated by 10% between February and October. In terms of the nominal exchange rate, it depreciated by 9.8%,” he said, adding that this was due to changes in policy shifts in advanced economies, particularly in the US.
“In terms of our efforts to encourage businesses to repatriate export earnings into ringgit and encouraging investors to bring back income and convert to ringgit ... that has shown a positive outcome,” he noted, adding that this had resulted in a healthy two-way flow in the market and appreciation of the ringgit.
Abdul Rasheed believed the ringgit would benefit from strong domestic growth and momentum from ongoing government reforms and the narrowing of interest rate differentials between the US and Malaysia.
He admitted that the change in the US presidency could lead to some initial volatility, but gave an assurance that Malaysia would be ready to bounce back.
On Thursday, the US removed Malaysia but added South Korea to its “monitoring list” of major trading partners whose currency practices call for closer attention, according to a Treasury Department report.
The semi-annual report looks into countries with large trade surpluses with respect to the US that also actively intervene in foreign exchange markets to gain a competitive advantage.
