Govt mulling free float mechanism for oil price
Published on: Thursday, May 05, 2016
Kuala Lumpur: The Government is mulling the possibility of replacing the managed float mechanism with a free float system to set petrol and diesel retail prices, said Deputy Finance Minister Datuk Chua Tee Yong.A free float system could benefit consumers by introducing competition among petrol station operators, although more detailed studies are needed before a final decision is made, he said."The government is studying the possibility of implementing a free float system to replace the current managed float method, but it has not been decided whether oil prices will be determined daily, weekly or fortnightly," he said here Wednesday.
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He was replying to a supplementary question from Senator Datuk Mohd Suhaimi Abdullah, who wanted to know whether the government would follow the example of some countries in implementing a free float mechanism amid the volatile global crude oil prices.Chua said under the present managed float mechanism, RON 95 and diesel do not come under the Goods and Services Tax and their prices are lower than in neighbouring countries.In reply to the original question, Chua said the government would continue with the managed float system in operation since Dec 1, 2014 to fix the retail prices of RON95 petrol and diesel. "Under this mechanism, the retail prices of RON95 petrol and diesel are based on the average world price of crude oil in the previous month, so if global oil prices drop, petrol pump prices of RON95 petrol and diesel in the country would go down correspondingly, and vice versa," he said.
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For this month, retail prices of RON95 petrol, RON 97 petrol and diesel are maintained at last month's prices of RM1.70, RM2.05 and RM1.55 a litre respectively. Meanwhile, the government is not planning to revise the gross domestic product (GDP) and fiscal deficit targets, although global crude oil prices have stabilised at around US$45 per barrel and above the US$35 mark set for the 2016 Budget, says Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah.
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"It's still premature. We don't know whether the price will remain this stable. We are watching closely (the movement of oil prices) and will maintain the GDP growth target."But in terms of the fiscal deficit, we have some space, as (with) higher oil prices we can undertake more programmes and projects," he said.Under the 2016 recalibrated budget, the economy is projected to grow between 4.0 to 4.5 per cent this year, based on the assumption of oil prices ranging between US$30-US$35 per barrel.The government too aims to narrow its fiscal deficit to 3.1 per cent of the GDP from 3.2 per cent last year.Mohd Irwan said there were many factors influencing the movements of crude oil prices such as, current developments in the United States, where oil producers were rushing back to the market."We are afraid that shale gas and shale oil (producers) may come back into the market due to the higher prices. The government will not resort to any rationalisation or stimulus measures this year," he added.At the press conference, Mohd Irwan was also asked to comment on the appointment of the new Bank Negara Malaysia Governor.He said Datuk Muhammad Ibrahim was the best candidate following his status as Deputy Governor and in having served for a long period with strong experience.He also described him as an intelligent and very knowledgeable leader, always coming up with brilliant ideas, capable of meeting the organisation's goal.On talk that the appointment of Muhammad had provided some insight on the continuity in policies of the country, Mohd Irwan said regardless of whoever was named as Governor, the government did not have any intention of changing key policies.Stay up-to-date by following Daily Express’s Telegram channel.
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