Malaysian currency peg not 'cast in stone'
Bloomberg News
January 21, 2005
Khoo Hsu Chuang and Stephanie Phang 

KUALA LUMPUR Malaysia's ringgit peg is not "cast in stone," Prime Minister Abdullah Ahmad Badawi said Thursday, echoing comments a day earlier by his predecessor, Mahathir bin Mohamad, that the currency's peg to the dollar should be reviewed.
 
"There is no change at this point in time, but we continue to analyze the situation," Abdullah said. "There is no time frame but, as I've said before, no regulation is cast in stone."
 
Mahathir imposed capital controls and fixed the ringgit at 3.8 to the dollar in 1998, aiming to ward off currency speculation at the height of the Asian financial crisis.
 
While the link helped Malaysia weather the crisis, it has also meant that the ringgit tracked the U.S. dollar's decline against the euro and yen, making imports more expensive.
 
"I feel the time has come for us to review because we have lost a lot as the value of our currency has fallen," Mahathir, who retired in 2003 after leading Malaysia for 22 years, said in comments reported by the state-owned Bernama news agency. Malaysia can fix the peg "at any level we want."
 
Sufi Yusof, a spokesman for Mahathir, confirmed the former leader's remarks.
 
Malaysian bonds have been rallying on expectations that the peg would be scrapped.
 
Speculation that China would scrap its own exchange rate peg to the dollar has increased expectations that Malaysia would make changes to its foreign-exchange policy, and Mahathir's comments may convince "a lot of the doubters," Joseph Tan, an economist at Standard Chartered in Singapore, said.
 
"We'll look at developments and if there are fundamental structural changes that have taken place, if there are potential misalignments of our currency, then we will review the situation," the governor of the central bank, Zeti Akhtar Aziz, said.
 
"This gives the political green light," Tan said. Mahathir is saying "we don't need to stick to this thing forever and it's time to look at it again."
 
UBS said in a note Nov. 12 that Malaysia may abandon the ringgit peg in the first half of 2005. Standard Chartered said in July the ringgit would probably be revalued in 2005.
 
The ringgit was pegged to the U.S. currency in September 1998 to stem capital flight from Malaysia during the Asian crisis. China's currency, the yuan, was fixed at about 8.3 to the dollar in 1995.
 
"Currencies change from time to time," Zeti said when asked about Mahathir's comments. "We don't look at just one currency. We look at many currencies and we want stability of our exchange rate against our major trading partners. That's the overriding objective of our exchange rate policy."
 
The Malaysian Institute of Economic Research said in December that the country should consider removing the peg and switching to a managed float, allowing a gradual appreciation in the currency.

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