Any move to peg the ringgit against the US dollar will not be the best interest for Malaysia in the current challenging environment, Bank Negara Malaysia governor Tan Sri Nor Shamsiah Mohd Yunus said.
“Instead Malaysia’s flexible foreign exchange policy was able to absorb economic shocks and preserve its competitiveness in a challenging global environment,” the governor is quoted as saying.
“Pegging the ringgit will not be the best move in Malaysia’s interest. It will pose a huge risk to the country. For example, we need to emulate the monetary policy of the country we peg the currency to.”
“If the US Federal Reserve (Fed) wants to raise rates by 3.0 per cent, then we also need to follow it. This causes us to lose monetary freedom,” she added.
The former Prime Minister Tun Dr Mahathir Mohamad suggested on Wednesday the government should consider the currency peg to address the ringgit’s current fluctuation on the foreign exchange market.
In his tweet, “the global economic uncertainty resulting from the Covid-19 pandemic had made it even more important to prevent instability in the ringgit’s value,” as the former PM put it.
“The ringgit had depreciated 0.7 per cent against the US dollar in Q1 of 2022, broadly in line with the movement of regional currencies,” Bank Negara said.
“This was due to the broad US dollar strength, driven by higher US interest rates, global risk-off sentiment given the conflict in Ukraine and expectations of modest growth in China.”
Nor Shamsiah further commented that “it must also be acknowledged that the main factors that contributed to the country’s success in pegging the ringgit in 1998, mostly through capital controls at that time, had an impact on the country.”
“So maintaining a currency peg is a very burdensome policy as it will take up a large portion of our country’s reserves. Currency pegging will also have a big impact not only on the inflow of foreign direct investment into Malaysia but also cause the outflow of capital from the country,” she concluded.
