Offshore Ringgit Trading

KUALA LUMPUR, Oct 24 (Bernama) -- The ringgit, now trading at 3.36 to the U.S. dollar, is likely to appreciate further bolstered by market forces if Malaysia scraps the nine-year old ban on its offshore trading.In supporting the move, the Malaysian Institute of Economic Research said the authorities should hasten scrapping the ban as early as next year rather than later as it would boost investment opportunities in the country.The move would allow market forces to push the ringgit higher as it has been in a short leash all the time with "much" controls in place, Prof. Dr. Mohamed Ariff, the executive director of the private think-tank, said here Wednesday."If you remove that (offshore trading ban), it will the give the ringgit a much longer leash to go further," he said when responding to Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz's comments that Malaysia would consider removing the ban when it has a very developed and vibrant foreign exchange market."It would also provide opportunities to utilise the excess liquidity that the country has in the financial system," he said.Currency analysts predict the ringgit to likely to touch 3.00 by end-2008 even without the lifting of the ban due to the dollar's downtrend and Malaysia's strong economic fundamentals."The ringgit is strengthening, the reserves are so high and the economy is doing fairly well, so I can't see why we can't do it," he said.Dr Zeti, speaking to the media in Washington Tuesday, however declined to give a date when the offshore trading of the ringgit would be allowed.Dr Mohamed Ariff said: "I am happy that the central bank is thinking about it (but) it better be done early next year rather than at the end of next year."Malaysia banned offshore trading of the ringgit in 1998 when imposing capital controls during the height of the Asian financial crisis to ward off unscrupulous hedge funds speculating against the Malaysian currency.Speculation against the ringgit led the unit to fall to as low as RM5.20 against the dollar at one point in 1998 from a high of 2.42 against the greenback in July 1997 just before the financial crisis hit the region.Among the capital controls was pegging the ringgit to the U.S. dollar at RM3.80, which was removed on July 22, 2005.Currently, the local currency is pegged against a basket of undisclosed currencies.Dr Mohamed Ariff said anticipation of a further downtrend in the dollar has given an opportunity for the ringgit to further strengthen in the coming months.As a result, "we retain our target of 3.35 per U.S. dollar by the end of this year but the local currency could reach 3.00 by the end of next year," he said.MIER said the ringgit has appreciated by 4.5 percent against the U.S dollar since end of December 2006.At the opening bell today on the foreign exchange market, the ringgit strengthened at 3.3680/3710 against the U.S. dollar compared with 3.3735/3765 at yesterday's closing.