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.