ECO531

Article Review

PREPARED BY:

MUHAMMAD AMIN BIN WAHAB

(2020985643)

PREPARED FOR:

MISS SHAHISZAN ISMAIL

SUBMISION DATED: 21/1/2021

 Table of content
NO CONTENT PAGES

1.0 Summary of the article 1

2.0 Fiscal policy 1-2

3.0 Interest rates 2

4.0 Monetary policy 2

5.0 Article 3-5

1.0 Summary of the article

According to the article by malay mail (bernama) on 10 Aug 2020, The ringgit has
shown resilience in these tempestuous times as global economy struggles to come to terms
with Covid-19 and the pressure of economic volatility. The ringgit was trading below the 4.20
threshold against the US dollar in five months, supported by rising oil prices and favourable
Malaysia Government Securities, as well as Malaysian Islamic Treasury Bills’ yield
divergence, economists said. 

Overall, the local currency has appreciated 4.71 per cent in the last 133 days. In
contrast, the greenback, in July, lost five per cent of its value against major basket of
currencies, but the ringgit appreciated from RM4.44 on March 23 to RM4.24 on Aug 3. I can
foresee the ringgit trading at 4.05 mark against the US dollar at year-end, the level it was
trading on Jan 17, 2020. It will be trading between 3.97 and 4.30 level this year on a weaker
US dollar, Juwai IQI Global chief economist Shan Saeed told Bernama. 

The fair market value of the pair is 4.15 and 4.24 versus US dollar in the third
quarter, he said, adding that year-end forecast for the pair is between the 4.00 and 4.05
level. He said the greenback will continue to move in the downward spiral as sophisticated
and smart investors were moving into other currencies such as Chinese yuan and British
pound. Dollar has lost five per cent of its value against major currencies in the last 33 days
because its macroeconomic stability becomes a huge question mark. While all of these
factors will have positive impact, the ringgit might trade slightly lower this week due to an
expected sharp decrease of the second quarter gross domestic product growth, according to
Kenanga Research. To date, BNM has lowered OPR rate to 1.75 per cent.

2.0 Fiscal policy

According to the article that I review, it show the ringgit Malaysia is able to maintain
their value against American USD. It show that price of palm oil increase have affected the
value of Malaysia currency. So now, let move to the fiscal. According to the slide fiscal policy
is policy that deals with government spending and taxation such as budget deficit is the
excess of expenditures over revenues for a particular year, budget surplus is the excess of
revenues over expenditures for a particular year and any deficit must be financed by
borrowing.

Based on the article, the Malaysia’s fiscal has predict to be not increase in overnight
policy rate for next18 and 24 month. Malaysia make it real by reduce the overnight policy
rate by 1.75 per cent. This is because the nation is try to pursuing lower interest rate regime.

1
As we can see in here, the Malaysia government use the expansionary fiscal policy. Based
on the slide of lecturer Miss Shahiszan Ismail (Oct 11, 2020) expansionary fiscal policy is
when the government expands the money supply in the economy. It uses budgetary tools to
either increase spending or cut taxes. That provides consumers and businesses with more
money to spend.

3.0 Interest Rates

Interest rate is the rate or other lender charges to borrow its money, or the rate a
bank pays its savers for keeping money in an account. Typically noted on an annual basis
known as (APR). Change in interest rate will give positive and negative impact to the country
economy. So based on the article, the BNM has reduce the interest rate to in response to
the economy activities and this help the government increase their economy. It will
encourage people to make loan and it help increase the activities in economy.

When people pay less interest rate, this will give them more money to spend, which
could have a ripple effect from rising spending across the economy. This give an advantages
to financial institutions because the banks are able to lend more. Because of lower interest
implemented, it will help businesses make large purchase that can boost their capital.

4.0 Monetary policy.

According to the slide of Nurin Adleena (Dec 15, 2020), monetary policy is a
government policy on money supply and credit creation aimed at achieving higher economic
growth, stability in prices and full employment. The objective of monetary policy is interest-
rate stability. It is desirable because fluctuations in interest rates can create uncertainty in
the economy and make it harder to plan for the future. Government have to control the
interest rate depending on the economic condition.

Based on the article, the instrument that BNM has used to increase the economy is
qualitative instrument which is the interest rate. The BNM has persuade commercial banks
to reduce their rate of interest on deposits. By doing this, it will reduce the total saving on the
deposits and therefore, it will increase the demand for money. When all banks decrease the
interest rate, public will get lower costs of credit. So, it will increase the public purchasing
activities and increase the demand for money. Because of that, it will make unemployment
will be reducing when firm offer more jobs to the public.

2
Article

Ringgit maintains structural

stability in face of Covid-19,
global volatility, say
economists
Monday, 10 Aug 2020 03:58 PM MYT

The ringgit is seen as steady while the global economy struggles to come to terms
with Covid-19 and the pressure of pronounced volatility. — Reuters pic

3
KUALA LUMPUR, Aug 10 — The ringgit has shown resilience in these tempestuous
times as global economy struggles to come to terms with Covid-19 and the pressure
of economic volatility.

The ringgit was trading below the 4.20 threshold against the US dollar in five months,
supported by rising oil prices and favourable Malaysia Government Securities, as
well as Malaysian Islamic Treasury Bills’ yield divergence, economists said.

Overall, the local currency has appreciated 4.71 per cent in the last 133 days.

In contrast, the greenback, in July, lost five per cent of its value against major basket
of currencies, but the ringgit appreciated from RM4.44 on March 23 to RM4.24 on
Aug 3.

“I can foresee the ringgit trading at 4.05 mark against the US dollar at year-end, the
level it was trading on Jan 17, 2020.

“It will be trading between 3.97 and 4.30 level this year on a weaker US dollar,”
Juwai IQI Global chief economist Shan Saeed told Bernama.

The fair market value of the pair is 4.15 and 4.24 versus US dollar in the third
quarter, he said, adding that year-end forecast for the pair is between the 4.00 and
4.05 level.

He said the greenback will continue to move in the downward spiral as sophisticated
and smart investors were moving into other currencies such as Chinese yuan and
British pound.

“Dollar has lost five per cent of its value against major currencies in the last 33 days
because its macroeconomic stability becomes a huge question mark.

“I think, it continues to stay weak as the country’s economic outlook looks fragile and
uncertain,” Shan said.

He pointed out that the deep ‘L’ shaped recession in the US will persist for the next
two years and the Federal Reserve is expected not to increase rates until Dec 2022.

While all of these factors will have positive impact, the ringgit might trade slightly
lower this week due to an expected sharp decrease of the second quarter gross
domestic product (GDP) growth, according to Kenanga Research.

Bank Negara Malaysia (BNM) is scheduled to announce the results on August 14.

“We will continue to see monetary and fiscal policy amalgamation and work in
progress as the government tries its best to maintain macroeconomic stability,” Shan
said.

He expects BNM will not increase the overnight policy rate for the next 18 to 24
months as global central banks are pursuing lower interest rate regime.

To date, BNM has lowered OPR rate to 1.75 per cent.

4
“Global central banks will continue to adopt accommodative monetary policy to spur
growth in order to meet their mandate for growth outlook in order to achieve
economic progression for the masses at the macro level,” Shan said.

So far, 39 central banks have lowered their interest rate, thus signalling the shift in
the monetary policy outlook for the next two years. — Bernama