THERE is “no imminent need” for Malaysia to unpeg the ringgit, an International Monetary Fund (IMF) official said yesterday. But he urged the authorities to study it, to allow greater policy flexibility.
IMF Division 1 chief (Asia and Pacific Department) Dr Luis M. Valdivieso said although flexible exchange rates were advocated by the fund, “it is not an end in itself, and should be part of a framework incorporating fiscal and monetary policies”.
Valdivieso, who was in Kuala Lumpur to deliver a paper at the National Economic Outlook 2004 conference, was responding to a participant’s question on whether the currency, which had been pegged at RM3.80 against the US dollar since September 1998, should be allowed to float.
The ringgit is believed by economists to be undervalued by some 10% due to a weak US dollar but this is a boost to exporters, as it makes Malaysian products cheaper in the global markets. Despite the government saying that the ringgit peg was here to stay, there had been persistent speculation that it could be removed.
The fund’s first deputy managing director Dr Anne O. Krueger said it was not for the IMF to decide the exchange rate policy for a country, but the implications of a fixed exchange rate on policy manoeuvrability leading to “stricter circumstances” needed to be a consideration.
“Flexibility in the exchange rate gives the economy another shock absorber,” she said in response to reporters’ questions on the sidelines of the conference.
Asked if now would be a good time for Malaysia to de-peg the ringgit should it choose to do so, Krueger said that was a judgement for the authorities.
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