Malaysia will not peg ringgit to US dollar or implement capital controls: PM Najib

Najib Razak said that he would not peg the ringgit to the US dollar or implement capital controls.
Najib Razak said that he would not peg the ringgit to the US dollar or implement capital controls.PHOTO: BLOOMBERG

KUALA LUMPUR (REUTERS) - Malaysian Prime Minister Najib Razak said on Thursday (Aug 20) he would not peg the ringgit to the US dollar or implement capital controls as he sought to calm fears about the sliding currency and capital flight from Southeast Asia's third-largest economy.

Mr Najib, who has come under severe criticism after being embroiled in a scandal over indebted state fund 1Malaysia Development Berhad (1MDB), is trying to reassert his leadership over his government and a stumbling economy.

"The flexibility of our exchange rate is important to absorb global adjustments and volatility," he said in a statement.

The ringgit, Asia's worst performer this year with losses exceeding 17 per cent against the US dollar, was steady on Thursday after the comments and found some respite as China's yuan rallied. It was trading at 4.1090 to the US dollar, at 17-year lows, and 2.9305 to the Singapore currency, near all-time lows, as at 1.50pm on Thursday.

With debts of over US$11 billion, 1MDB is being investigated for allegations of graft and financial mismanagement. Najib sits as the chair of its advisory board.

Najib has sought to ride out the political storm by reining in dissent within his party and government. He sacked his deputy last month and replaced the attorney general amidst a probe into 1MDB.

The 62-year-old has also faced criticism for taking his eye off an economy suffering from weak global commodity prices and falling domestic consumption.

Mr Najib, who also serves as finance minister, met economists from local and foreign financial institutions this week, promising to "proactively manage the economy going forward", he wrote on Facebook.

Separately, Malaysian central bank Governor Zeti Akhtar Aziz said foreign exchange reserves had fallen but it was not a cause for worry.

"We've seen it decrease before and there's no issue to be concerned because that's what the reserves are there for, to represent a buffer to adjust during such periods," she told reporters.

Malaysia's international reserves fell below the US$100 billion (S$140 billion) mark as of July 31, boosting doubts over abilities to defend the worst-performing Asian currency so far this year.

She also backed the prime minister's comments on ruling out a dollar peg for the ringgit.

"There's no intention of moving to a less flexible regime like a peg exchange rate regime," Ms Zeti told reporters. "The fact that we can adjust allows the rest of our economy to remain more stable."

The central bank earlier on Thursday (Aug 20) denied reports that it had issued a circular prohibiting local banks from taking orders for ringgit transactions from offshore banks at the daily fixing rates, according to a spokesman.

Local newspaper The Sun had reported on Thursday that Bank Negara Malaysia had issued the ban after the ringgit plunged to 4.10 to the US dollar last Friday.

"There is no such thing," a Bank Negara Malaysia spokesman said when contacted by phone.

Analysts say the currency has been hit by the anticipaton of a US rate hike, the commodity rout and reduced confidence in Malaysia stemming from the 1MDB probe that triggered a political crisis for Mr Najib.