Malaysia rules out currency peg for ringgit, says deputy finance minister

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In dealing with the weakness of the ringgit to the US dollar, Malaysian Deputy Finance Minister Ahmad Maslan on Tuesday (Jun 20) said that the government maintains its position to not peg the ringgit due to the adverse effects it will have on the public. 

Mr Ahmad said pegging the ringgit would cause Malaysia to lose the ability to continue its monetary policy.

This would force the country’s central bank, Bank Negara Malaysia (BNM), to raise the Overnight Policy Rate (OPR) to the same level as the United States’ interest rate which is currently at the threshold of 5 per cent to 5.25 per cent, he added. 

“The people already feel ‘uncomfortable’ with the OPR at 3 per cent, what more if it is increased to 5.25 per cent,” said Mr Ahmad during an oral question and answer session at the Upper House of parliament. 

He was replying to an additional question from senator Shamsuddin Abd Ghaffar who wanted to know if the government would peg the ringgit. 

Mr Ahmad said that Malaysia would need high international reserves to maintain the pegging at the set value.

“Another disadvantage, capital flow control will not be free because the entry and exit of foreign investment into our country will be controlled. When we peg the value of the ringgit, it affects the country’s confidence and competitiveness,” he added

He stressed that in an uncertain global financial market, the flexible ringgit exchange rate plays an important role as an external shock absorber while reducing the impact on domestic economic activities.

Therefore, the government remains committed and focused on implementing structural policies that are able to increase economic growth and the country’s competitiveness in order to attract inflows of funds and foreign investment that will support the ringgit.

This includes policies to improve Malaysia’s investment climate and productivity through the implementation of the New Investment Policy (NIP). The NIP outlines significant strategies to reinvigorate and catalyse Malaysia’s investment ecosystem, then-International Trade and Industry Minister Mohamed Azmin Ali was quoted by local media as saying in October last year. 

Mr Ahmad told parliament on Tuesday that the government will also ensure that fiscal sustainability and a stable macroeconomic situation are maintained by formulating a robust, prudent and clear medium-term fiscal policy such as the Fiscal Policy, Fiscal Responsibility Act (FRA) which will be presented to Parliament soon.

BNM will also adopt an approach to ensure that the ringgit level is in order, he added. 

Mr Ahmad said that in order to deal with the volatility of the foreign exchange market, BNM will continue to manage risks from domestic and external developments, as well as be prepared to use its operational policy instruments to ensure orderly market conditions.

“The risk from the sudden movement of the ringgit’s exchange rate against the US dollar can also be reduced through the use of hedging instruments, an emphasis on prudent external loans and a high depth of the domestic currency market,” he said. 

Source : Channel News Asia