KUALA LUMPUR - The government has no intention of pegging the ringgit and imposing foreign exchange (forex) controls as the country did during the Asian financial crisis in 1998, since it is not the right solution for dealing with current challenges, said Deputy Finance Minister II Steven Sim Chee Keong.
He said the national economy and financial system were now on a stronger footing to face global financial market volatility and forex movements.
"Secondly, (if it imposed a ringgit peg,) Malaysia would lose its monetary policy freedom and need to follow the interest rates based on the ringgit-pegged currencies.
"For example, if the ringgit is pegged to the US dollar, we would have to raise interest rates in line with those in the United States, and this will exert pressure towards higher financing costs for the people,” he said in response to a query from Wan Ahmad Fayhsal Wan Ahmad Kamal (PN-Machang) in the Dewan Rakyat today.
Wan Ahmad Fayhsal wanted to know whether the government, through Bank Negara Malaysia (BNM), planned to peg the ringgit’s value as implemented previously due to the ringgit’s low level against the greenback at present.
Sim said that maintaining a peg would require large international reserves.
"Otherwise, we would have to reintroduce capital control measures to prevent and overcome speculative pressures on the ringgit.
"If capital control measures were introduced today, the negative impact on investor confidence would be very dear and could affect capital flows, as Malaysia has a much larger capital market now compared with 1998,” he said.
Therefore, as a central bank responsible for financial and currency market stability, BNM will ensure orderly ringgit adjustments to prevent volatility in terms of sharp ringgit/US dollar movements, he added. - BERNAMA