Four-year-old currency peg to stay: central bank
The country's four-year-old currency peg of RM3.80 to the US dollar has provided economic stability and will not be changed, the central bank said today.
In its 2001 annual report, Bank Negara Malaysia said policy would focus on ensuring the peg remained sustainable and continues to benefit trade and investment.
"For a small open economy, the exchange rate has always been an important price to Malaysia as it could affect confidence, price stability and long-term national competitiveness," it said.
"It has therefore always been Malaysia's long-held policy not to resort to exchange rate changes to gain competitive advantage nor to respond to transient and short-term currency movements that could easily be reversed."
The report said the ringgit appreciated by 2.1-8.2 percent last year against all regional currencies, which were dragged down by the Japanese yen's depreciation and domestic political developments.
But based on its trade-weighted nominal effective exchange rate (NEER), the ringgit appreciated by 5.5 percent in 2001 in line with a stronger greenback.
"However, since September 1998, the ringgit's NEER has appreciated by only three percent. Given the relatively small appreciation, the ringgit has essentially maintained a fair valuation."
Functioned effectively
Malaysia's monetary policy would remain accomodative this year to ensure that the economic recovery was well entrenched, it added.
Bank Negara governor Zeti Akhtar Aziz told a news conference the exchange rate regime has "functioned effectively" and was well supported by domestic fundamentals.
The peg has allowed for effective implementation of pro-growth policies and for the accelerated pace of banking and corporate restructuring and reforms, she said.
Although the peg could be affected by any downside in the Japanese yen, she said stability in the Chinese yuan would ease the pressure.
"With low inflation and stronger economic fundamentals, Malaysia has the ability to exercise greater policy flexibility to preserve longer-term sustainability and stability."
The peg is part of capital controls imposed in 1998 amid a recession induced by the Asian regional crisis but all the other curbs have since been lifted.
For more news and views that matter, subscribe and support independent media for only RM0.36 sen a day:
Subscribe now