76. No re-peg of the Ringgit

Malaysia will not re-peg the ringgit now or in the future, Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak said Monday.

"We are committed to allow the market to determine the value of the ringgit," he said in his first meeting at the Finance Ministry here today.

Najib said the government was confident of the ringgit's position and it reflected the real value of the currency.

The ringgit has depreciated from a high of 3.13 in April to 3.41 now due to the appreciation of the US dollar in global markets.

At 9.08am today, the ringgit was higher at 3.4120/4170 against the greenback from 3.4570/4620 on Friday.

Najib was responding to questions on former Prime Minister Tun Dr Mahathir Mohamad's suggestion that the ringgit's exchange rate be fixed again to cushion it against the impact of the weakening dollar against other currencies.

The ringgit was pegged at RM3.80 against the greenback in September 1998 to cushion it against currency speculators during the Asian financial crisis of 1997/1998.

Before the crisis, which started with the attack on the baht in July 1997, the ringgit was trading at a high of RM2.42 but fell steeply against the dollar following excessive speculation.

The ringgit depreciated to RM5.20 at one time in 1998, prompting the government then to impose capital controls and the peg.

Najib, who was previously Defence Minister, swapped portfolios with Prime Minister Datuk Seri Abdullah Ahmad Badawi on Wednesday.

He said the country's economy could also withstand global financial uncertainties due to its strong fundamentals and limited exposure to global financial markets such as the derivatives market as well as through better supervision.

"To ensure Malaysia's economy is not affected by global economic developments, all related bodies such as the Ministry of Finance, Bank Negara Malaysia and Securities Commission will step up their supervision.

"This is to ensure that the real economy is not affected," he said.

Najib expected the country to record a growth of 5.7 percent this year.

He said there were also signs of inflation declining.

Inflation, as measured by the Consumer Price Index, soared to a 26-year high in June to 3.9 percent mainly due to the substantial increase in petrol and diesel prices.

Najib said the government was also committed to fully implement the 2009 Budget.

Meanwhile in another  interview, Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said "the floating exchange rate regime provides Malaysia with the flexibility to adjust to international economic and financial developments.

"The regime also accords exchange rate stability against our main trading partners. What is needed now is stability, not rigidity.

"A fixed exchange does not eliminate volatility. It merely transfers the volatility to domestic prices such as asset prices and inflation.

"Therefore, a re-pegging of the ringgit has never been a consideration. The ringgit will continue to operate under a managed float regime with its value being determined by the market," she said.

Zeti was responding to questions on a suggestion by former Prime Minister Tun Dr Mahathir Mohamad that the Malaysian currency's exchange rate should be fixed again to cushion the impact of the weakening dollar against other currencies.

Dr Zeti said the central bank operations will continue to aim at ensuring orderly market conditions, in particular, to deal with excessive disruptions to the market.

Going forward, she said, it is expected that this underlying trend would continue.

Since the unpegging of the ringgit in 2005, Dr Zeti said it has been on a gradual appreciating trend, reflecting the fundamentals of the economy.