Malaysia to keep the ringgit pegged at 3.8 to U.S. dollar
Malaysia to keep the ringgit pegged at 3.8 to U.S. dollar
KUALA LUMPUR (Reuters): Malaysian Prime Minister Mahathir Mohamad on Saturday laid to rest all speculation that the ringgit currency's peg might be revised, saying it will remain at 3.8 to the dollar for a "long, long time".
Mahathir emphatically reiterated that the ringgit, pegged against the U.S. dollar when Malaysia introduced capital controls in September, will stay at the current level to enable businesses to operate in a stable environment.
"If anybody tells you that the government is going to change the value of the ringgit, ask them to jump in the sea. It will stay at 3.8 per (U.S. dollar) for a very long, long time," he said at the launch of a campaign to promote home sales.
Many analysts had said that recent gains among the region's currencies, particularly the Indonesian rupiah, the Korean won and Thai baht, might prompt Malaysia to revise the peg to 3.5 to the U.S. dollar.
Adding to the confusion, other analysts suggested a possible devaluation of the ringgit to 4.2 per dollar because of weak domestic economic conditions.
There was also speculation Malaysia might unpeg the ringgit and impose a managed float, allowing it to fluctuate by a limited amount.
Mahathir also said the introduction of capital controls and other expansionary fiscal measures had begun showing results.
He said the domestic stock market's capitalization had improved by 180 billion ringgit ($47.37 billion) since September, during which time the Kuala Lumpur Stock Exchange's blue-chip Composite Index had risen by more than 50 percent.
The KLSE Composite Index ended at 533.88 on Friday. It hit a low of 261.33 on September 1, when the capital controls were introduced.
"We had lost 700 billion ringgit in market capitalization," Mahathir said, noting market capitalization was more than 900 billion ringgit when the Composite Index was at the 1,200 level before the regional financial crisis struck last year.
On Friday, Mahathir told a group of foreign fund managers that capital controls would remain in place for now, but he was willing to consider revising a ruling that prevents portfolio investors in shares from repatriating their money for one year.
The prime minister stopped short of making any promises to the fund managers, but economists said Malaysia has set a course for return to the international financial system.
The economists said despite the government's denial, currency controls -- which have been criticized by foreign investors who have stayed away from Malaysia -- were expected to head for a phased exit in the not so distant future.
Since the capital controls were introduced, Malaysia has been downgraded to junk bond status by all international credit rating firms and dropped from the Morgan Stanley Capital International (MSCI) index, an important benchmark for foreign investors.
Foreign investors have said that to return to the MSCI, Malaysia will have to lift all restrictions on the flow of money in and out of the stock market.