They are: the effects of a possible increase in interest rates by the US Federal Reserve next month, the South China Sea territorial dispute for oil and gas, and the direction that the 1Malaysia Development Berhad (1MDB) issue takes.
Political and economic analyst Prof Hoo Ke Ping said the new governor would have to be proactive and work with the Federal Government on the three issues.
Muhammad replaced Zeti Akhtar Aziz as the central bank governor late last month.
Hoo said the governor was the “boss of the ringgit” and had actual knowledge and information regarding monetary issues plaguing the country.
“If the boss of the ringgit and the boss of Putrajaya (prime minister) can work together, we can achieve a lot. The governor knows the monetary issues and the government knows the rakyat’s problems. If they can constantly work together in terms of improving the economy, the country will benefit.”
Hoo said Bank Negara and the government should look at ways to strengthen the value of the ringgit against the US dollar. As of yesterday, the ringgit was back again at RM4 against USD1.
He said one of the ways was to attract investors. “Bursa Malaysia is strong because foreign traders are constantly investing here, compared with matured markets in Europe and the US.”
However, he said, investors were jittery following the 1MDB fiasco.
“We are a small country. We need both the central bank and the government to work together. They need to look at ways to improve investor confidence as they wait to hear the direction that 1MDB takes.”
He said Muhammad should monitor the legal dispute on overdue payments between 1MDB and Abu Dhabi’s International Petroleum Investment Company as it could result in a further devaluation of the ringgit if investors did not have any good news on 1MDB.
“Investors had initially thought the 1MDB issue would be settled. But it has dragged on longer than expected. Now, with the legal dispute, it will continue for another decade or so. Investors are waiting for a new direction on the case,” he added.
Muhammad also needs to look out for the risk of conflict in the South China Sea.
China, Taiwan, Vietnam, Malaysia, Brunei, and the Philippines have competing territorial and jurisdictional claims over rights to the region’s possibly extensive reserves of oil and gas.
Hoo said the tensions arising as a result of the growth of China’s military powers in the South China Sea dispute could result in the ringgit suffering.
Hoo said the new governor would also need to be proactive on issues affecting the middle income group.
For instance, the prices of homes started shooting up in 2009, but nothing was done till 2012. “By that time, the middle income group could not afford to buy houses anymore,” he said, adding that there should be easier ways for the middle income group to obtain bank loans.