(AFP) Malaysia has ruled out any need to re-peg the ringgit since the economy is in a good position and the financial system is not under stress, Central Bank governor Zeti Akhtar Aziz said.

Zeti was quoted by the New Straits Times today as saying domestic fundamentals have strengthened and these are important factors to ensure the sustainability of the peg.

The newspaper said the various exchange rate regimes are under scrutiny in view of the weakening of the yen vis-a-vis the US dollar and Argentina's financial crisis.

Malaysia pegged the ringgit on Sept 1, 1998, at 3.80 ringgit to the dollar and imposed selective capital controls to insulate the domestic economy.

Zeti said the Malaysian economy has sufficient flexibility to undertake adjustments in all sectors of the economy to remain competitive under changing circumstances.

"True competitiveness will not be derived from exchange rate flexibility but more from increasing efficiency and providing quality service," she said.

Modest growth

Zeti said to ensure the fixed exchange rate continues to operate effectively the government would ensure inflation is kept low and maintain external debt at prudential levels.

Prime Minister Mahathir Mohamad last week said Malaysia would post modest economic growth of 0.5 to 1.0 percent in 2001, down from earlier projections of 1.0 to 2.0 percent.

Mahathir said he hoped domestic consumption would fuel much-needed economic growth.

The government last month cut its growth forecast for this year for a second time to 1.0-2.0 percent, and has imposed a range of fiscal measures to boost consumer spending.

Malaysia last plunged into recession in 1998 amid the Asian financial crisis, but it rebounded the following year and recorded a heady 8.5 percent growth last year.