PUTRAJAYA, Malaysia,, 14 January 2004 — Malaysia is willing to review its ringgit currency peg if conditions warranted a change, its prime minister said yesterday, showing investors the flexibility they want to see if the dollar keeps on falling.
Abdullah Ahmad Badawi, who succeeded veteran leader Mahathir Mohamad in October, said Malaysia would keep the peg intact for now but would stay alert to developments in the global markets. “If it warrants, we will change it but for now it gives stability and predictability,” Abdullah, who is also finance minister, told a news conference. “We are not going to keep it for ever and ever.”
His comments made the domestic bond market rally, with yields on the three and five-year government benchmarks dropping four and seven basis points, as concerns eased Malaysia might opt to raise interest rates alongside the United States if the dollar weakness continued.
But the stock market, which has risen more than three percent since the start of this year, lost 0.6 percent to 818.4 points. “It’s actually market boosting news, but today it is overshadowed by profit-taking,” said Choo Swee Kee, a fund manager at KLCS Asset Management.
The ringgit was fixed at 3.80 to the dollar in September 1998, towards the end of the Asian currency crisis, and investors in the country view its sustainability as a key economic risk.
Speculation swirled in recent weeks that Malaysia would be pressured by the falling US dollar into revaluing, although a low ringgit boosts exports. Many traders believe Malaysia will only act if China adjusts its yuan first.
Some currency traders believe the government is working on a contingency plans that include allowing the ringgit to float within a set band in case the dollar falls further.
Ali Abul Hassan Sulaiman, economic adviser to the government, told Reuters: “All I can say is we have to review it from time to time.”
Malaysian authorities have said in the past they would consider adjusting the peg if there was a 20 percent move either way against the currencies of regional trading rivals.
A participant in a closed-door meeting with Abdullah said the leader did not detail what sort of changes were possible. “But he indicated a willingness to look at it with openness, to look at alternative regimes rather than adhering to a rigid one if conditions warranted,” said Nicholas Zefferys, a governor at the American Malaysian Chamber of Commerce.
The new Malaysian leader said investors could no longer depend on government pump-priming and the huge spending on development projects of the past to push growth.