KUALA LUMPUR – Malaysia’s finance ministry announced on Tuesday its commitment to implementing structural policies aimed at boosting fund inflows and attracting foreign investment to support the ringgit. The ministry reiterated that it had no plans to peg the currency to the U.S. dollar.
The ringgit has experienced a decline of 5.4% since the beginning of the year. On Tuesday, it traded at 4.6380 against the dollar, reaching a fresh seven-month low and approaching its weakest levels since January 1998.
During the Asian financial crisis in 1998, Malaysia resorted to capital controls and pegged the ringgit at 3.8000 to the dollar, maintaining the peg until 2005. However, the government clarified last year that it had no intention of implementing a peg again due to the risks associated with capital outflows.
Deputy Finance Minister Ahmad Maslan, speaking in the Senate, emphasized that re-pegging the currency would jeopardize Malaysia’s monetary policy independence and potentially require an increase in interest rates to match the high borrowing costs in the United States. He further noted that the current interest rate level was already challenging for the people.
Instead of a currency peg, the government intends to focus on improving Malaysia’s investment climate, enhancing productivity, and implementing fiscal sustainability measures to attract high-quality foreign investment, Ahmad stated.
Bank Negara Malaysia (BNM), the country’s central bank, which unexpectedly raised its benchmark interest rate last month to manage persistent inflation, will also seek to reduce volatility in the foreign exchange market by employing hedging instruments, according to Ahmad.
BNM emphasized the need for structural reforms to strengthen growth prospects and create more investment opportunities to bolster the ringgit earlier this month. The government’s efforts will be geared towards improving the investment climate, fostering productivity, and attracting foreign investment of higher quality.
The implementation of these measures aims to support the ringgit’s stability and encourage favorable economic conditions for Malaysia, promoting sustainable growth and reinforcing the country’s financial resilience in the face of global market uncertainties.