The move will pose a huge risk to the country

by S BIRRUNTHA / pic TMR FILE

Pegging the ringgit against the US dollar is not a sound monetary solution for the currency’s current fall in value, Bank Negara Malaysia (BNM) Governor Tan Sri Nor Shamsiah Mohd Yunus (picture) said.

She said the weakness of the local unit at present is driven by external factors such as high-interest rates in the US and uncertainties in China.

“A flexible foreign exchange policy is able to absorb economic shocks and preserve Malaysia’s competitiveness in a challenging global environment.

“Pegging the ringgit is not the best move in the interest of Malaysia. It will pose a huge risk to the country,” she said during Malaysia’s first quarter of 2022 (1Q22) GDP announcement in Kuala Lumpur today.

The ringgit was last done at RM4.3925 against the greenback. The local unit closed at RM4.2105 against the dollar on April 1.   

According to BNM, the ringgit depreciated by 0.7% against the US dollar in 1Q22, broadly in line with the movement of regional currencies.  

Nor Shamsiah 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.

She noted that high commodity prices and Malaysia’s recovery prospects had also cushioned the downward pressure on the ringgit from these external factors.

“Going forward, while domestic financial markets are subject to periods of high volatility, spillovers to domestic financial intermediation are expected to be contained.  

“Malaysia’s strong external position and resilient banking system enable the economy to withstand external shocks,” she said.

Former Prime Minister Tun Dr Mahathir Mohamad had on Wednesday suggested the ringgit be pegged at RM3.80 against the US dollar to stabilise the exchange rate value.  

The local unit was pegged against the greenback more than 20 years ago as the country grappled with the effects of Asian Financial Crisis.

“When we set the value of ringgit at RM3.80 against the dollar and guarantee the supply of dollars to anyone who is willing to pay RM3.80 for US$1 (RM4.39), the value of ringgit will no longer fluctuate.  

“This would also disable currency traders from devaluing the ringgit by selling it in large quantities,” Dr Mahathir wrote on Twitter.

He stated that the ringgit is fluctuating because the value is not set and guaranteed by the government.

Analysts and economists have projected for the ringgit to stay weak in the near-term as the US Federal Reserve is expected to aggressively tighten its monetary policy towards normalisation post-pandemic and to fight off inflationary pressures.