KUALA LUMPUR – The government will not peg the ringgit as it is the wrong solution amid current headwinds, said Deputy Finance Minister II Steven Sim.
Sim (Bukit Mertajam-PH) told the Dewan Rakyat today that Bank Negara will ensure the adjustment of the ringgit is done properly so it remains stable.
He added that this is to deal with the risk of sudden changes in the exchange value of the ringgit against the US dollar.
“The country’s economy and financial system are now better positioned to cope with global financial market volatility and exchange rate movements.
“Therefore, if the ringgit is pegged, then it will lose its freedom of monetary policy and will have to follow the interest rate of the currency that pegs the ringgit.
“For example, if the ringgit is pegged to the US dollar, then we will need to raise the interest rate in line with the dollar currency.
“This will put further pressure on higher financing costs for the rakyat.”
He further added that to maintain the pegging of the ringgit, the country will need larger international reserves or it will have to reintroduce capital control measures to prevent and overcome speculative pressure on the ringgit.
He also said that if the pegging of the ringgit is reintroduced now, the negative impact on investor confidence will involve high costs, which may affect capital flows.
“Therefore, Bank Negara Malaysia (BNM), as the central bank responsible for financial and currency market stability, will ensure that the adjustment of the ringgit is in order.
“And the government, in dealing with the risk of sudden movement of the ringgit’s exchange value against the US, will continue to manage risks from domestic and external developments.
“The government will also be prepared to use its operational policy instruments to ensure orderly market conditions.
He also answered Datuk Seri Shafie Apdal (Semporna-Warisan) who raised concerns about maintaining demand for the ringgit while ensuring it remains unsold, by saying that BNM has implemented several measures to ensure these.
“For example, BNM will continue to manage risks in terms of domestic and external developments and be prepared to use basic instruments from its operations to ensure that the market remains in order.
“BNM will also manage the risk of sudden movement in the exchange value of the ringgit against the US dollar through hedging instruments.
“These are expected to ensure business needs are met effectively while costs and foreign exchange needs are efficiently managed,” he added. – November 1, 2023