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 governor Nor Shamsiah Mohd Yunus said.

She said maintaining a peg will be very costly as it takes up a sizeable amount of reserves, like in the last decade, and this ultimately will weaken Malaysia’s external resilience. 

“A peg will have detrimental effects on investors’ sentiment, affecting not only foreign direct investment into Malaysia but also causing capital outflows from Malaysia,” she told reporters after announcing Malaysia’s GDP performance for the first quarter of 2022 in Kuala Lumpur today.

She said Bank Negara does not target any level of exchange rate and will 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.

On the weakening of the local currency, she said it is largely driven by external factors as growth in the United States is 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 lockdowns,” she said. 

Nor Shamsiah said the Volatility Index has also gone up, 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 said the flexible exchange rate buffers the economy and preserves Malaysia’s competitiveness under the global condition.

According to Bank Negara, the ringgit depreciated by 0.7% against the US dollar in Q1 2022 and 4.7% as at May 11, broadly in line with the movement of regional currencies. – Bernama, May 13, 2022.