Published September 23, 2008

Najib rejects RM re-pegging

He says there is no intention to peg the currency to the US$ now or in the future

By PAULINE NG
IN KUALA LUMPUR
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NAJIB Razak, in his first pronouncement as Malaysia's new Finance Minister, has dismissed re-pegging the ringgit.

Mr Najib: Malaysia's strong fundamentals and limited exposure to global financial turmoil put it in a strong position to weather the effects of the US sub-prime fallout

'I want to state categorically that we have no intention to peg the ringgit now or in the future,' he said yesterday.

According to him, the ringgit's current position reflects its true value. 'We will let the market determine the value of the ringgit.'

Mr Najib, who is also Deputy Prime Minister, took over the finance post last week from Prime Minister Abdullah Badawi, who assumed Mr Najib's defence post.

After Mr Najib was briefed yesterday by finance ministry officials, market regulators, state investment agency Khazanah Nasional and the state-run Employees Provident Fund, he said that Malaysia's 'strong fundamentals' and limited exposure to global financial turmoil puts it in a strong position to weather the effects of the US sub-prime fallout.

He was forced to speak on the ringgit after former premier Mahathir Mohamad suggested last week that the currency not be floated against a basket of other currencies, because it is vulnerable to external forces.

Ten years ago when the Asian financial crisis hit, Dr Mahathir imposed capital controls and fixed the ringgit at 3.8 to the US dollar to halt capital outflows and to stabilise the currency. The peg was not lifted until 2005.

A strident critic of Mr Abdullah, who he accuses of running Malaysia into the ground, Dr Mahathir is thought to want Mr Najib to take the helm. His advice last week was that stabilising the exchange rate could help cushion the impact of the global slowdown. According to reports, he said that if the value of the ringgit was strengthened 10 per cent, import value would depreciate by a corresponding amount.

International Trade Minister Muhyiddin Yassin waded in by saying that some aspects of the previous mechanism might be applicable today.

Dismissing the notion, CIMB chief economist Lee Heng Guie told BT: 'We are not in sufficiently dire straits to even think of it.'

Although analysts are concerned about the softer ringgit, which is trading around 3.46 to a US dollar and is anticipated by some to weaken to 3.5 by year-end, they believe that measures should be taken to address issues that worry investors, as evidenced by a capital outflow of almost RM32 billion (S$13.24 billion) in the second quarter.

Some analysts have criticised the central bank's decision to hold the overnight policy rate at 3.5 per cent despite rising inflation, which in July hit a 26-year high of 8.5 per cent.

Another concern is bigger spending under the budget, which is expected to hit a deficit of 4.8 per cent of gross domestic product this year.