Malaysia's central bank chief said the currency's peg to US dollar will remain despite sliding foreign reserves and regional currency fluctuations, a newspaper reported yesterday.
The Malay language Utusan Malaysia cited Bank Negara Governor Zeti Akhtar Aziz as saying that the country's low inflation rate and strong balance of payments made the ringgit's 3.80 peg to the dollar sustainable.
"There are no economic factors that can support a change to the ringgit peg," Zeti told Utusan in an interview to mark her first anniversary in office.
The peg is the last of the capital controls imposed in 1998 by Prime Minister Mahathir Mohamad during the Asian financial crisis. It has come under renewed focus in recent weeks as regional currencies weaken.
Mahathir has said the peg will not be lifted based on minor variations in currency markets. He says the capital controls served Malaysia well during the crisis, insulating it from currency speculators.
Speculation about a repeg has intensified recently. Competitiveness is becoming an important issue, with the economic downturn in the US drying up the market for Malaysia's biggest export sector, the manufacture of electronics goods and components.
Some economists insist that if reserves continue to fall, the peg will be vulnerable as exports slow during a softening global economy.
Bank Negara reserves have been falling steadily after peaking at US$34.5 billion in June last year.
The downward trend was slightly reversed in the last two weeks of April, but resumed in early May. Bank Negara said Tuesday said its international reserves fell to US$26.1 billion as at May. 15, from US$26.4 billion as at April 30.
Total reserve assets dropped to 133.1 billion ringgit (US$35 billion) May 15, below the level recorded April 30 of 134.9 billion ringgit (US$35.5 billion), the bank said.
Zeti said foreign reserves are still strong and could support the ringgit peg, and that regional currencies had stabilized somewhat.
RSS