KUALA LUMPUR: Deputy Prime Minister and Finance Minister Datuk Seri Najib Razak made it clear yesterday that the government had no plans to peg the ringgit to the US dollar.

“I wish to categorically state that we have no intention of re-pegging the ringgit, now or in the future,” Najib said after his first meeting at the Finance Ministry yesterday.

He said the government was committed to letting the market determine the ringgit’s value.

“We are confident about the position of the ringgit. It reflects the true value of the currency.”

The ringgit closed higher yesterday at 3.41 against the greenback, compared with 3.45 last Friday.

The market had earlier been rife with talk of a potential re-peg.

Former prime minister Tun Dr Mahathir Mohamed suggested last weekend that the government should do so to protect the ringgit against a weakening dollar amid the current financial crisis in the United States.

In Dr Mahathir’s government, Malaysia pegged the ringgit at RM3.80 to the dollar during the 1997 Asian financial crisis in a drastic move to curb capital outflows.

The peg was lifted in 2005, and the ringgit is now in a managed float against a basket of currencies.

Bank Negara Malaysia governor Tan Sri Zeti Akhtar Aziz said a re-pegging “has never been a consideration”, as it would not eliminate volatility and would be “very harmful” to the economy.

She said the ringgit would continue to operate under a managed float regime as it provided 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.”

Analysts like Kaladher Govindan, head of research at TA Securities, said it was a good decision not to re-peg the ringgit to the US dollar as it would “shoo away a lot of foreign investors” who were averse to restrictions.

Najib, who took over the finance portfolio from Prime Minister Datuk Seri Abdullah Ahmad Badawi last Wednesday, said the economy would be able to withstand the current global financial turmoil because of its strong fundamentals and limited exposure to world financial markets.

Nevertheless, all government bodies, such as the Securities Commission, had been instructed to step up their monitoring activities to ensure that the real economy was not affected, he said.

The government expects the economy to grow by 5.7 per cent this year.

Najib said there were signs that inflation, which shot up to a 26-year high of 3.9 per cent in June following a fuel price increase, was falling on a month-to-month basis.

He said his top priority was to ensure strong economic growth, low inflation, low unemployment and higher disposable income for the people.

He was in no hurry to introduce major changes and said the government was committed to fully implementing Budget 2009.

He plans to meet foreign fund managers during a coming trip to New York, where he will attend the United Nations General Assembly, to assure them about Malaysia’s strong economic fundamentals and good governance.

“It is a good story to tell, but it’s been overshadowed by the political news that’s been given more prominence by the press.”

Hamilton Bacon:
Najib is right in not repegging the ringgit. It really didn’t help the last time anyway, and only served to delay our return to economic growth. The current policy of a soft peg is good enough. To have a fixed peg is to limit your options, and that is the last thing we need during a volatile period. The best way to strengthen confidence in the currency is to adopt strong economic fundamentals, and one of which is to move away from deficit spending which has been a bad habit since Mahathir’s time.

Article source:

The New Straits Times