June 21, 2023
KUALA LUMPUR – Malaysia’s Finance Ministry said on Tuesday that it would implement structural policies aimed at boosting fund inflows and foreign investment that can support the ringgit, reiterating that it has no plans to peg the currency to the US dollar.
The ringgit has fallen 5.4 per cent so far in 2023, and on Tuesday was trading at 4.638 to the dollar, a fresh seven-month low and close to its weakest levels since January 1998.
In 1998, during the Asian financial crisis, Malaysia imposed capital controls and pegged the ringgit at 3.8 to the US dollar, maintaining the peg until 2005.
It said in 2022 that it would not do so again, citing the risk of capital outflows.
Malaysia would risk losing its monetary policy independence and might need to increase its interest rates to match high borrowing costs in the United States if it re-pegged the currency, Deputy Finance Minister Ahmad Maslan told the Senate on Tuesday.
“The people are already struggling (with the current interest rate level),” he said.
Malaysia’s central bank, Bank Negara Malaysia (BNM), unexpectedly raised its benchmark interest rate in May, citing a need to manage persistent inflation amid robust domestic demand.
The government would instead focus on improving Malaysia’s investment climate and productivity, and will implement fiscal sustainability measures that can attract quality foreign investment, Datuk Seri Ahmad said.
BNM would also look to reduce volatility in the foreign exchange market, including through the use of hedging instruments, he said.
The central bank said in June that Malaysia needed structural reforms to strengthen growth prospects and encourage more investment opportunities to boost the ringgit. REUTERS