IMPLEMENTING a foreign exchange control to halt the "free fall" of the ringgit against foreign currency will send a negative sentiment to the market, economists warned.
Malaysia University of Science and Technology lecturer Professor Geoffrey Williams said such a move would be "hugely damaging" to an already fragile and unattractive investment climate in the country.
According to Williams, Malaysia is just experiencing a temporary market fluctuation and he believed that placing limits on the free flow of capital, as suggested by former finance minister Tengku Razaleigh Hamzah, would cause fear among foreign and domestic investors.
"In this environment, international investors will not entertain talk of capital controls to control an uncontrollable exchange rate," he told the New Straits Times.
"Local investors will also flee if this suggestion by Tengku Razaleigh is taken seriously," he said, adding that such a drastic measure was not needed because there was no exchange rate crisis happening in the country.
Tengku Razaleigh recently called for exchange controls to be presented in the 2023 Budget to stop the declining ringgit in foreign exchange markets.
He said swift measures were needed as there was a risk of the ringgit becoming devalued to the point that people would need to carry their money in rickshaws.
Juwai IQI chief economist Shan Saeed said he believed in a free market and not in exchange controls because many market variables might have changed.
In echoing Williams' view, Shan said exchange controls would only send negative signals to the market.
"As for now, Malaysia has operated on free market principles, and I believe the country's currency does not need unnecessary intervention. Malaysian markets should move on their own in a self-correcting mechanism," he said.
Putra Business School lecturer Associate Professor Dr Ahmed Razman Abdul Latif said a weakened ringgit would make the country's products more attractive and cheaper, hence contributing to larger exports.
However, he said the weak domestic currency would also make the country's imports more expensive, causing products sold domestically to become more costly.
"I am not keen on introducing exchange controls as we do not have enough depth in our reserves to implement such measures. A better option is for the 2023 Budget to focus on empowering local production and lowering import dependency," he said.
In the same view, Rakuten Trade Sdn Bhd vice-president of equity research Thong Pak Leng said the exchange control would help to stabilise the ringgit but cause an outflow of money from the country.
"I do not think foreign exchange controls on the ringgit should be presented in the 2023 Budget to deal with the cost of living.
"Exchange controls will help the development of the local currency, but this is also negative to the stock market," he said.
In addition, Bank Islam chief economist Firdaos Rosli said the exchange control would do more harm than good to the country as macroeconomic fundamentals now were unlike how they were in the late 1990s.
"I don't think investors would appreciate this. It worked then, but not now. The Asian bond market today is relatively more mature than in the 1990s, so investors have options," he said.
Firdaos said the ringgit's fate was primarily driven by the United States Federal Reserve's aggressive tightening path policy to mitigate inflationary pressure. Thus, he said, as long as there was no pause indication from the Fed, the ringgit could be on a downward trend versus the dollar.
"Historically, the ringgit needs at least three months to stabilise. Hence, the current trend could improve gradually as Bank Negara Malaysia would normalise its monetary policy accommodation," he added.