BNM doesn't intervene despite having adequate reserves because this time, it is not RM depreciating alone like 97, whereby at that time, RM vs all major currencies plummeting. (I remembered last time Rm:GBP 7.3)

It is against USD that RM drop the most, against other major currencies like Yen, Aud, Euro, GBP, RM is actually appreciating a little somemore or more and less the same.

That's why BNM doesn't make a move until now.

Intervene in exchange rate will only drain your foreign currency reserves faster, it is not prefer move as long as the movement of rate is still order.

Money changer is a bit risky and troublesome if talking about significant money.

When there is money outflow, for sure it will drain the foreign currencies reserves, it doesn't mean BNM goes into the market to intervene.

Intervene means throwing its own USD and exchange into RM purposely to stablise the exchange rate.
While ordinary need to exchange for demand of money inflow/outflow is not an intervention.

So far there is no report showed the BNM intervene the forex market aggressively.

When a overseas fund pull out money from stock market/bond market in Malaysia, they sell the bonds/stocks, and get the cash RM.
Now they want to convert the RM to USD, who can exchange the RM into USD for them? BNM. Where BNM can find the USD? From its foreign currency reserves.
Then you see BNM's USD amount drop aka its foreign currency reserves drop.

Same with a local company doing export, they received payment in USD. Now they want to convert RM, who they exchange the USD to RM? BNM.
Then you see foreign currency reserves rise, this is how Malaysia or BNM built up the foreign currency reserves.

One can hedge against RM through investing in stock market as well on those company that potential benefited from the lower RM exchange, typically company doing export and received payment in USD.

The cost of living is not the same.

I remembered my time live in UK, although wages figure was roughly the same, £1500~2000 for fresh grad, as compared to here Rm1500~2000, the cost of buying foods is not the same with there.

I bought a Tesco bread at 20p, while here need RM1.50, frozen pizza was £1 pound while here need a few RM, whole set of computer about £400, here need RM2000.
The one may be more expensive is room renting, other I found generally is cheaper relatively (without converting).

So, one has better chance to save more at there as compared here as their purchasing power is stronger relatively to their wages.
While work there and saved enough and retired at weaker currency like Malaysia, then Malaysia is like a retirement heaven for them.

You only need weaker currency when your economy fundamental is poor.

USD, SGD never need a weak currency to drive their economy.

Weak currency is more like poor man tool, no offence.

AFC 97 is not about high currency valuation, but more about unsustainable economy/financial structure.

Just like a person doesn't earn enough (export), but keep on spending (import) more than earn, and keep on borrow more (issued USD denominated bond) to fund the spending.
The imbalance of trade deficit is too steep to be handled.

Using low value currency to compete just means the economy doesn't step up into next level in competing.

We don't see US or Sg intends to lower their currency to compete with others, because they don't need to.

The analogy is like Iphone, vs cheapo phone.
Iphone never will need to lower their pricing to sell their product.

But competitor between cheapo phone needs to lower price to undercut their rival so that they can have better sales, if not they will need to close shop due to poor sales.

Export will increase with lower currency, as the lower currency means your product is cheaper and undercut rival.
People love to buy from you instead rival country.

But this is a poor man tool, as example given in cheapo phone competition, and cannot rely it forever.

As keep on lower your currency, just means your kill your own people purchasing power.
What's for more export but the expense of lower purchase power?

Economy growth supposely is to increase the income of people and purchasing power.

So there must be a balance in between, cannot rely forever using low currency to compete.

Still poor man tool theory intact.

At that time, US company found it hard to compete against like Sony, Toyota, Panasonic, hence need to low currency to compete.
While there were plenty of political issue involved as well, which needless to talk into it further as get derailed from financial topic.

Fundamentally, there is nothing good or proud about championing with lower currency.
When you constantly and repeating need lower currency to compete, it just means the economy doesn't step up.

Just like cheapo phone vs Iphone example I given.
You can use cheapo phone (lower currency) as start up, kick start, but as time goes, you need to value added making premium phone that people want instead continously relying on people want to buy from you just because you are cheaper.

Economy growth is about improve people income and purchasing power, this is the ultimate goal.
Central banks can build up billion or trillion of foreign currency reserves, but people income and purchasing doesn't increase, then the economy growth doesn't yield much meaningful result.
Just like Japan, it has trillion of foreign currency reserves, but economy is stagnant, then the reserves is not much meaningful to its people and economy as a whole.

Same with China, that's why they allow their currency to rise steadily (which they can resist if they wish to, if based on reason of championing low currency) as this is one of the way to improve their people purchasing power and become a stronger economy.

As I said before, there must be a balance in between, but championing lower currency continously is not something to proud about nor a right direction.

or
in other word, it is troubling for gov to say to their people, our currency become lower, hurray, we can do more business... , (it does in certain way, but it just means something is not right prior before devaluation)

You cannot always rely on cheaper currency to compete against rival. We are not talking about appreciation that hurt but constantly using poor man tool aka lower currency to undercut rival.

There is a difference between the currency appreciation hurt your business vs, constantly need to lower currency in order to compete.

Eg.
If USD appreciated 10%, or even 20%, people still buy Iphone
vs
Your currency do not drop, no business, hence need to lower 10% before can get a business.

Lower currency can be good in term of the kick start of ailing economy (just like 98 onwards), but it is like steroid, which cannot rely on it forever.

Malaysia won't able to have high local demand that absorbing what been produced here, unless people here are high income to start with.
That's why I said, economy is about driving up people income is the ultimate goal which make an economy stronger.

While US economy is more about domestic demand, that's why their economy can be strong.

The best is still a stable currency level, not too strong nor weak.

BNM doesn't have a lot of interest rate ammo at the moment.

Currently BNM OPR 3.5% is one of highest around, to support RM using interest rate, rate needed to be raised, which may kill the economy by doing so (which may already affected by GST domestically and slow down in world economy whereby we say mostly export/import of major trading countries are contracting).

The interest rate ammo BNM have is lowering rate to boost the economy, but with household debt already at elevated level, this is not something desired to be seen by BNM.
Lowering interest rate and let the household debt building up further? May be asking for more trouble only. (like sweet first pain latter)

So BNM interest rate ammo is in quite a conundrum position.

This post has been edited by cherroy: Jun 9 2015, 12:05 AM

I don't think BNM will intervene the market if the RM dropping is in tandem with other currencies.
As this time around, it is more about USD strength, instead of RM weakness alone.

We don't see major rate movement between other major currencies like Aud, Yen etc.
Sgd is always tightly move with USD, so we see significant movement as same as USD.

Currently worldwide trade figure is weak across, not only Malaysia, this is the aftermath effect of lower oil price, commodities price now being seen in the trade figure, so we have dropping export/import figure despite with weaker currency.

There is nothing wrong with foreign workers itself, but gov need to come out a clear policy on hiring, assist corporate to drive up productivity etc. instead of flip flopping policy on foreign workers issue.
Foreign workers are the one make the factories running, driving the export figure.
Even Sg has lot of foreign worker especially Malaysian.

Without foreign workers, many industries will become standstill.
Foreign workers is not equal to low value export, as long as you get the combination right, they are contributing to the productivity as well.
Just like what Sg had done.

Foreign workers shouldn't be the spacegoat, instead we should look back on ourself doing.

Europe economy is not export orientated so the effect of weaker currency boosting the export is not significant.

The data or state of trade and current account surplus/deficit already tell all the story.

GDP for 2nd Q is highly to be weak, poor consumer sentiment, poor sales recorded in most company (can be seen on many listed company turnover), as well as both import and export figure shrinking.

Financial market (be it currency, stock market, bonds) is a forward looking mechanism.
It won't wait until the news come out, only it start to move.

It moves way ahead on anticipation of events.

The RM movement to the downside recent is more and less taking cue of potential downgrade and other negative factor already, aka forward looking mechanism.
That's why we see weak RM currently.

Weak currency won't able to boost certain export product, eg. oil.
As oil is traded in USD, Malaysia export oil won't be cheaper than other even though RM plunge to RM4.00 vs USD.
Just oil export company may gain extra profit if they converted the USD into RM.
While if they don't convert back to RM and the profit made in USD needed to repay borrowing in USD or funding capital expenditure etc, the weak RM has no effect on this scenario.

Malaysia economy is not the like 80's or 90's, whereby export industry was the major GDP contributor at that time.
Now, domestic consumption starts to grow quite significantly over the last decade and becoming one of major GDP contributor.
Hence if RM is too weak, it can hurt domestic consumption.

There is a limit that a weak currency can propel the export. As if this theory is right, Zimbabwe should be doing extremely well in export.

So the balance must get it right. Too strong, not good, too weak, also not good.

Euro and Yen should be weak as well for near term.

There is possibility of Euro parity with USD.

The market more and less factored in already.

Financial market won't wait until last min to move one or wait until the news is confirmed or out time.

Greece impose capital control which send some shock wave to the financial market across the globe.

A little surprise that Fitch revise the outlook to stable.

http://www.thestar.com.my/News/Nation/2015...laysia-outlook/

I guess the collection of GST that exceed expectation and fiscal situation improvement is the major reason.