KUALA LUMPUR: The government maintains its position not to peg the ringgit in dealing with its weakness compared to the US dollar due to its adverse effects on the rakyat, said Deputy Finance Minister 1 Datuk Seri Ahmad Maslan.

He said pegging the ringgit would cause Malaysia to lose the ability to continue its monetary policy and would then force Bank Negara Malaysia (BNM) to raise the Overnight Policy Rate (OPR) to the same level as the United States' interest rate which is currently at the threshold of 5.00 - 5.25 per cent.

"The rakyat already feel 'uncomfortable' with the OPR at 3.00 per cent, what more if it is increased to 5.25 per cent," he said during an oral question and answer session at the Dewan Negara today.

He was replying to an additional question from Senator Datuk Shamsuddin Abd Ghaffar who wanted to know if the government would peg the ringgit. Earlier, Shamsuddin had asked about the cause of the fall of the ringgit and the efforts to deal with it.

Ahmad Maslan said Malaysia would need high international reserves to maintain the pegging at the set value.

"Another disadvantage, capital flow control will not be free because the entry and exit of foreign investment into our country will be controlled. When we peg the value of the ringgit, it affects the country's confidence and competitiveness," he added.

He said that in an uncertain global financial market, the flexible ringgit exchange rate plays an important role as an external shock absorber while reducing the impact on domestic economic activities.

Therefore, the government remains committed and focused on implementing structural policies that are able to increase economic growth and the country's competitiveness in order to attract inflows of funds and foreign investment that will support the ringgit.

This includes policies to improve Malaysia's investment climate and productivity through the implementation of the New Investment Policy (NIP).

The government will also ensure that fiscal sustainability and a stable macroeconomic situation are maintained by formulating a robust, prudent and clear medium-term fiscal policy such as the Fiscal Policy, Fiscal Responsibility Act (FRA) which will be presented to Parliament soon.

BNM will also adopt an approach to ensure that the ringgit level is in order.

He said that in order to deal with the volatility of the foreign exchange market, BNM will continue to manage risks from domestic and external developments, as well as be prepared to use its operational policy instruments to ensure orderly market conditions.

"The risk from the sudden movement of the ringgit's exchange rate against the US dollar can also be reduced through the use of hedging instruments, an emphasis on prudent external loans and a high depth of the domestic currency market," said Ahmad Maslan.

-- BERNAMA