PETALING JAYA: The government has no intention to peg the ringgit despite the local currency sliding to a 25-year low against the US dollar, deputy finance minister Steven Sim told the Dewan Rakyat today.
He said that the domestic economy is currently better equipped to face the volatility of the global financial market, unlike during the 1997 Asian financial crisis.
Sim said this in response to a query from Machang MP Wan Ahmad Fayhsal Wan Ahmad Kamal in the Dewan Rakyat.
Wan Fayhsal asked if the government has any plans to peg the ringgit to a certain value as it did in 1999 following the Asian financial crisis.
During the peak of the financial crisis, Malaysia had pegged the ringgit at 3.80 to the US dollar and imposed capital controls. The peg was eventually lifted in 2005 and replaced with a managed float system.
The ringgit weakened to 4.7958 against the greenback last week, the lowest in more than 25 years. It had since climbed slightly to close at 4.7695 today.
Year-to-date, it is the worst performing currency after the Japanese yen, having dropped more than 8% against the dollar.
Protect monetary freedom
The Bukit Mertajam MP said that Malaysia would lose its monetary policy freedom if a ringgit peg is imposed.
“For example, if the ringgit is pegged to the US dollar, we would have to raise interest rates in line with those in the US.
“This will also exert pressure towards higher financing costs for the people,” he said.
Furthermore, Sim said that a huge amount of international reserves would be required in order to maintain a ringgit peg.
“Otherwise, we would have to reintroduce capital control measures to prevent and overcome speculative pressures on the ringgit,” he said.
“Bank Negara Malaysia will continue to manage risks from domestic and external developments and be prepared to use its operational policy instruments to ensure a more orderly market situation,” Sim added.