KUALA LUMPUR (Nov 1): In dealing with the weakness of the ringgit to the US dollar, the government is steadfast in its decision not to peg the ringgit to the greenback due to concern about the potential adverse impacts on the public, says Deputy Finance Minister II Steven Sim Chee Keong.

Sim explained that the government does not intend to peg the ringgit as it did during the Asian financial crisis in 1998, as it is not the right solution for today's challenges.

"Our economic system is in a far better position to face the global financial market volatility and exchange rate movements." Sim said during an oral question and answer session in the Dewan Rakyat on Wednesday.

He was replying to a question from Wan Ahmad Fayhsal (PN-Machang) regarding the possibility of the government pegging the ringgit, similar to what was done in 1998.

In addition, Sim explained that pegging the ringgit would result in Malaysia losing the ability to continue its monetary policy and having to align with the interest rate of the currency to which the ringgit is pegged.

"For instance, if we peg RM3 to the US dollar, we have to raise the interest rate in line with the US interest rate. This action will certainly put pressure on higher financing costs for the people," he added.

Sim pointed out that pegging the ringgit would necessitate a substantial international reserve to maintain the peg at the set value. It could lead to the reintroduction of capital control measures to counter speculative pressure on the ringgit.

"Such a move would negatively impact investor confidence and disrupt capital flows, given that Malaysia's financial market is much larger now than in 1998," Sim added.

Thus, Sim said that Bank Negara Malaysia (BNM), as the central bank responsible for the stability of financial and currency markets, would ensure that the ringgit's adjustment is more orderly to mitigate the risk of sudden fluctuations in its value against the US dollar.

"The government, through BNM, will continue to manage risks arising from domestic and external developments and be prepared to use operational policy instruments to ensure a more regulated market,"he said

In response to a supplementary question from Datuk Seri Shafie Apdal (Warisan-Semporna), Sim emphasised the importance of upholding a flexible exchange rate for the ringgit within an uncertain global financial market, highlighting its pivotal role as an external shock absorber while minimising its impact on domestic economic activities.

Sim reiterated the government's commitment to implementing structural policies that enhance economic growth and the country's competitiveness to attract funds and foreign investments that would support the ringgit.

These policies include measures to improve Malaysia's investment climate, productivity enhancement through the implementation of the New Investment Policy (NIP), economic transformation through the Madani Economic Framework, and a commitment to bolster fiscal sustainability through the introduction of the Public Finance and Fiscal Responsibility Act 2023.

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