Malaysia sees no gain from ringgit depreciation

Malaysia sees no gain from ringgit depreciation

KUALA LUMPUR (Reuters): Malaysia would gain nothing from depreciating its ringgit currency right now, central Bank Negara Governor Zeti Akhtar Aziz said on Saturday.

Speculation whipped through stock market last week after falls in Asian currencies, led by a weak yen, raised questions how long Malaysia could hang on to its 3.8 ringgit-to-the-dollar exchange rate.

"In the context of the current environment it would certainly not be to our benefit to depreciate the currency," Zeti said in interview broadcast on local private television channel TV3 on Saturday night.

Nor did she see any reason to rein in the stock market for speculating against the ringgit.

"We do not feel any further mechanism is required on portfolio flows. There will continue to be free inflow and outflow of portfolio funds," she said, according to a transcript of the interview.

Many analysts agree with Zeti, saying a move to depreciate now is unwarranted, though some see a risk later in the year if an erosion continued in Malaysia's international reserves.

Malaysia's reserves fell $1.81 billion in March to $27.18 billion, enough to cover more than four months of imports. Half of the drop last month was due to a revaluation of other reserve currencies after the dollar's gains against them.

Speculators had reasoned Malaysia's export-dependent economy would be hit by a loss of competitiveness as neighboring countries' currencies fell.

But Zeti said depreciation was not the answer when demand for exports, notably electronics and computer equipment to the United States, was dropping.

"If you adjust your prices through the exchange rate by five to 10 percent it is unlikely that you are going to get increase in demand in an environment where demand is slowing down," she said.

The fixed exchange rate was adopted 2 years ago, along with capital controls to ward off the Asian crisis.