Mahathir says ringgit peg hinges on yen/yuan
Mahathir says ringgit peg hinges on yen/yuan
Simon Cameron-Moore, Reuters, Kuala Lumpur
Malaysia will review its ringgit peg if further weakening of the Japanese yen forces China to devalue, Prime Minister Mahathir Mohamed said on Friday in remarks that sent shudders into the local stock market.
"If it goes down, I'm worried because it may cause China to devalue, and if China devalues then of course it will force us to rethink about our ringgit peg," he told reporters.
Analysts said Mahathir, who had expressed his concern to visiting Japanese Prime Minister Junichiro Koizumi on Thursday, could probably rest easy.
They doubted whether China was anywhere near devaluing.
"That's a very big if in the first place," said James Malcolm, regional currency strategist at JP Morgan Chase in Singapore.
But Mahathir's comment unnerved Kuala Lumpur's stock market, which in the absence of a free currency market sometimes acts as a barometer of sentiment toward the ringgit.
Early gains on Friday were wiped and the top-100 share index was down 0.5 percent at 701.50 points by 2.45 p.m., after earlier touching a high of 710.29.
Malcolm said none of Asia's fixed currencies, either China's, Hong Kong's or Malaysia's were overvalued on a historical basis over the post-Asian crisis period.
"I don't think there is a chance of any of the pegs going this year," he said.
Mahathir told Koizumi he was watching with interest whether the sharp fall in the yen, which has lost 10 percent in two months, would impact China's yuan and currencies of export- oriented Southeast Asia.
Mahathir said Koizumi indicated Japan would try to stop the yen's fall but made no promises.
"He did not really give an assurance but he indicated, of course, that they will try to ensure that the yen doesn't depreciate any more," Mahathir said.
The U.S. dollar was around 132.22/23 yen in late trading in Tokyo, easing off late New York levels of 132.55.
Comments by Japanese officials, suggesting Tokyo is unhappy with the pace of the yen's fall, planted second thoughts among those aggressively selling the currency.
Asked at what level the dollar-yen rate could pose problems, Mahathir said: "They say 140, but I don't know. We'll study when it comes to 140."
In the past, Mahathir has said it would require a sustained 20 percent movement in the ringgit's value against the currencies of trading rivals to warrant a re-pegging of the ringgit.
The ringgit was fixed at 3.8 per dollar in late 1998, deliberately undervalued at the time to help stem capital outflows and economic recovery from the Asian crisis.
David Simmonds, currency strategist at Citibank in Singapore, said the dollar's move above 140 yen would raise competitive issues for Malaysia, but the decisive factor for the peg would be whether the dollar also strengthened against the Euro and Singapore's currency.
Simmonds said the risk to the ringgit peg at present was low, and he also doubted whether China would succumb to a devaluation.
"I don't think the Chinese authorities are going to change their currency (value) in any case," he said.
The danger for economies and currencies like Malaysia's would be if the U.S. recovery disappointed and the global economy failed to pick up, Malcolm said.
The United States is Malaysia's biggest market. The bulk of its exports are in the electrical and electronics goods category, hit hard hit by the slump in the global technology sector.
But Malaysia's economic growth is expected to recover after last year's abrupt slowdown to around 0.5-1.0 percent.
The central bank noted steady foreign direct investment inflows helped rebuild international reserves to nearly US$31 billion after dipping below $26 billion in mid-2001.