Tengku Zafrul: Flexible ringgit exchange rate important to support domestic economic activity

Minister of Finance Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the government, through Bank Negara Malaysia (BNM), would always ensure stable and smooth financial market conditions and take proactive measures to provide adequate liquidity and resilient markets to ensure the stability of the ringgit.

"Ongoing monitoring was also carried out by BNM to ensure an orderly foreign exchange market condition and avoid significant fluctuations in the ringgit exchange rate," he said in a statement today.

Meanwhile, Tengku Zafrul said the government would continue to manage domestic and external development risks.

"Compared to 1997 and 1998, the country is not in a state of financial or economic crisis," he said.

Therefore, he said the government, through BNM, has no intention to peg the ringgit against the United States (US) dollar at the moment as the move has a huge risk and trade-off.

"If we implement the pegging, Malaysia will need to fully follow the monetary policy of the country which currency being the 'reference' or basis for the ringgit.

"If ringgit is pegged, Malaysia will face constraints to set monetary policies and the people have to bear the high cost of financing even though our country's economic situation is not the same as in the US," he said.

He said currency pegging must also be complement with capital control measures to prevent capital outflow.

"This will certainly affect foreign investors' confidence in Malaysia," he said.

Tengku Zafrul said although the ringgit had weakened by 8.7 per cent against the US dollar since the beginning of 2022, other currencies have also declined at a more significant rate, including the Japanese yen, British pound, euro and Taiwan dollar.

He said the strengthening of the US dollar is a major factor that has influenced the global and regional foreign exchange movement, including a huge and aggressive interest rate hike of 225 basis points by the US Federal Reserves as of September 20, 2022.

"US interest rates are expected to increase between 75 and 100 basis points in the next meeting today to curb inflation in the US," he said.

Besides that, he said higher returns for assets in the US dollar would generate higher demand for these assets among global investors.

"This has threatened sentiment in the market and among investors, who further acted to restructure their investment portfolios in safe haven and financial instruments in the US dollar.

"Of course, most of the global currencies will continue to weaken against the US dollar as a result of this situation," he added.