Malaysia will keep its ringgit currency pegged to the US dollar unless something drastic happens, Prime Minister Dr Mahathir Mohamad said after the International Monetary Fund did an about turn and praised the country's economic tactics.

Malaysia pegged the ringgit at 3.8 to the US dollar during the Asian economic crisis in 1998 to protect it from currency speculators, a move criticised at the time by the IMF, which said the rate should be determined by market forces.

But an IMF report this week praised Malaysia's economic performance, saying it was recovering from the impact of last year's global slowdown and acknowledged that the peg had been a "stability anchor".

However some of the Fund's directors said that the country should soon consider moving back to a flexible exchange rate.

But Mahathir was quoted by local media today as saying this would not be done "unless something bad happens like if the currencies of our neighbouring countries with whom we compete depreciate until we can no longer be competitive, or if they appreciate so much that the cost of Malaysia's imports would be very high".