KUALA LUMPUR: Pegging the ringgit will not be in the best interest of Malaysia as it will have substantial risks, one of which is mirroring the monetary policy of the country that the local currency is pegged against, Bank Negara Malaysia (BNM) Governor Tan Sri Nor Shamsiah Mohd Yunus said.
She said maintaining a peg would be a very costly policy as it took up a sizeable amount of reserves, especially in the last decade, and this ultimately would weaken Malaysia’s external resilience.
ALSO READ: Time for a policy to make the ringgit stronger?
"A peg will have detrimental effects on investors’ sentiment, affecting not only foreign direct investment into Malaysia but also leads to capital outflows from Malaysia,” she told reporters after announcing Malaysia’s Gross Domestic Product (GDP) performance for the first quarter (Q1) of 2022 here today.
She said BNM does not target any level of exchange rate and would ensure that there is no excessive volatility in the exchange rate and conditions in the financial market.
"We have to acknowledge that the key factor that contributed to our ability to successfully track the ringgit in 1998 was the capital controls that was introduced back then,” she said.
ALSO READ: Getting worse before it gets better
On the weakening of the local note, she said it was largely driven by external factors with the fact that growth in the US is very strong and inflation is rising.
"On top of that, we have a lot of uncertainties in the global economy, including the ongoing conflict in Ukraine and uncertainty in China due to lockdown,” she said.
She said the Volatility Index (VIX) has also gone up constantly which resulted in a stronger US dollar while currencies in other countries were seen to depreciate against the greenback.
"Movement in the ringgit is in line with other regional countries and again I would like to stress having a flexible exchange rate is most appropriate given the current circumstances,” she said.
Nor Shamsiah said the onshore foreign exchange trading volume in the local market has been healthy and the volatility in the domestic onshore market has been somewhat not very far from the daily volatility rate.
She added that the flexible exchange rate buffered the economy and also preserve Malaysia’s competitiveness under the global condition.
According to the BNM, the local note depreciated by 0.7 per cent against the US dollar in Q1 of 2022 and 4.7 per cent as at May 11, 2022, broadly in line with the movement of regional currencies. - Bernama
Already a subscriber? Log in
Get 20% OFF The Star Digital Access
Cancel anytime. Ad-free. Unlimited access with perks.
