KUALA LUMPUR: There is no need to raise the interest rate as an immediate measure to address the current weakness of the ringgit, said analysts.
Raising the overnight policy rate (OPR) will only worsen the situation as financing costs become more expensive and may hinder the country's economic growth, they added.
The weak movement of the ringgit against the United States (US) dollar and regional currencies at the moment is unavoidable since it is influenced by external factors that are beyond control.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said for now, the ringgit is facing weak sentiment following the move by the People's Bank of China to reduce its interest rate and the probability of the US interest rate being reduced in March is slim, thus supporting the strengthening US dollar.
Therefore, he said there is no guarantee that raising interest rates will strengthen the ringgit.
He said it is not Bank Negara Malaysia's policy to use the OPR to control the movement of the ringgit.
He suggested the government should focus on efforts to consistently restructure the economy and stimulate the confidence of foreign investors to continue investing in the country.
"However, the implementation of economic reforms such as subsidies, industrial liberalisation, improvement of the tax system and pensions, among others, need to be clearly communicated and implemented gradually.
"This is to avoid unnecessary confusion and shock to the public. Therefore, it will take a long time if we want to deal with the weakness of the ringgit. Otherwise, we will only worsen the situation when policies are not implemented at the right speed and are not coordinated," he told Berita Harian.
UniKL Business School's economic analyst, Associate Prof Dr Aimi Zulhazmi Abdul Rashid opined that in order to strengthen the value of the ringgit, coordination and cooperation at the government level is crucial to support the local note.
He suggested the establishment of a committee from the Prime Minister's Department, the Finance Ministry, Bank Negara and the government-linked investment companies (GLICs) to take action.
Citing an example, he said at least 80 per cent of the country's total export revenue must be converted into ringgit. Foreign investments must also be converted into ringgit to strengthen the currency.
"Next, reduce the import of food items, provide incentives for cheaper local produce prices, reduce corporate tax from 24 per cent to attract foreign investment to bring in foreign currency and give tax breaks to domestic investment for domestic investors.
"The next step that can be taken is to increase the amount of spending on the tourism sector so that more foreign tourists will visit and spend in Malaysia," he added.
On the weak ringgit compared to regional currencies such as the Singapore dollar, the Indonesian rupiah and the Thai baht, lecturer at Tun Abdul Razak University's Graduate School of Business Studies Professor Emeritus Dr Barjoyai Bardai said it is likely that the country's reserves in the US dollar are smaller than other neighbouring countries.
He said in Thailand, the "tourist dollar" factor is supportive of the baht, while in Indonesia, the amount of long-term foreign investment is higher than in Malaysia.
In Singapore, he added, they keep US dollars as reserves.
"So right now, the government should focus on how to develop the economy in the country to drive the economy. If our economy gets fresher, foreign investors will come in," he said.