With the influence of external factors squashed, the ringgit is now priced more efficiently and increasingly more reflective of Malaysia’s strong fundamentals. Nevertheless, questions remain as to why the ringgit is far from reflecting its fair value. Numerous research pieces by analysts based on real effective exchange rates, have in fact, indicated that the ringgit is one of the most undervalued emerging market currencies. Despite 1/7  BIS central bankers' speeches  strong GDP data for the first three quarters and better-than-expected exports performance in 2017, the ringgit exchange rate movements have remained lethargic, with flows and sentiments still driven by external factors and foreign players. At times it appears as if domestic traders were playing second fiddle in own their market. It is time for our traders to price the ringgit accordingly, and play their rightful role in their home market. The ringgit should reflect economic fundamentals and emerging data. It is time for our local traders to be brave, stand up and be counted. This reminds me of a saying by Abraham Lincoln ‘Whatever you are, be a good one’. Part II – What drives the level of the exchange rate? Granted, the ringgit does, to some extent, reflect Malaysia’s economic fundamentals. The fact that the ringgit’s recent recovery coincided with strong domestic data releases suggests that. Nevertheless, in a global financial market that is driven by short-term developments, the ringgit exchange rate can veer in unexpected directions and reach levels that are far from reflecting economic realities.
Unfortunately, most of these movements are not driven by facts, but perceptions. In ringgit’s case, I would call it misperceptions. Perception is the thinking we make based on the information that we receive. Everyone thinks. It is our nature to do so. In fact, many of us in this room not only have to think, but we are tasked and compensated to think, decide and act upon our thoughts. It is said that an adult supposedly have to make an average of 35,000 decisions per day. This necessitates us to think fast and decide quickly. But studies have also shown that thinking forces the brain to consume a lot of oxygen, so much so that the process of thinking is tiring for our brain. Such decision fatigue can be paralysing. To ease the decision fatigue, most of us begin looking for mental short-cuts, heuristics and simple rules-of-thumb to ease the cognitive load and cut decision-making time. But as we rely on simple rules-of-thumb to form judgments and make decisions, we leave ourselves vulnerable to errors, manipulations and cognitive biases. Most of the time, this is not done deliberately. The large body of research in neuroscience seems to suggest that these cognitive biases are neurologically hard-wired, afflicting us all either consciously or unconsciously. Let me touch on three instances where our perception and actions have been influenced by these biases. First, take some of the psychological thresholds for example, loan-to-deposit ratio of 90%, ringgit level at RM4.00, and reserves level below USD100 billion is considered as vulnerable.