KUALA LUMPUR, Nov 28 2016 : Malaysia has no option but to face the current volatility of the ringgit while focusing on enhancing its economic fundamentals, said Second Finance Minister Datuk Johari Abdul Ghani.
He said although Malaysia had previously pegged its currency during the 1997 economic crisis, such a move made by the former Prime Minister Tun Dr Mahathir Mohamad is not practical now in an open global economy as the country will forfeit its economic growth.
He said the government would not peg the local currency or impose capital controls despite its recent volatility, and certainly would not increase the interest rate to attract foreign investments.
“Pegging it is not an option in today’s economy because the world now has become so open…even China, a country that closed its economy 20 to 30 years ago has now opened its doors to the world.
“If we want to be a developed country we cannot peg our currency, we cannot impose capital controls because if we do this now we will be left far behind and no one will invest here,” he said in his speech at the Women Power Talk, Effective Networking the Way Forward programme here, today.
Johari said increasing the interest rate to attract foreign investors also was never an option as it would raise the household debt in this country.
“(If we increase the interest rate) the people will be affected as the installment payment will increase, so we don’t have any option except to go through this transition,” he said.
Elaborating, he said the fundamental cause of the ringgit’s depreciation was because Donald Trump was elected as the President of United States (US).
He said during his presidential election campaign, Trump had made quite a number of rhetoric political statements and promised to focus on domestic-driven economy.
“So, to do this (domestic-driven economy) they need money, they need cash, they need funds. All these years, American investors have invested overseas and it is estimated that about US$2-US$3 trillion of their investments are in ASEAN
“In order to bring back this money, they will increase the interest rate in the US, and when this happens, our interest rate will become not so attractive,” said Johari.
The further decline of the ringgit was worsened by speculative activities in the offshore market, he said.
“Now the ringgit is under pressure, causing the depreciation, and that is why our reserves fell from US$170 billion to US$97 billion now as a lot of investors leave,” he said. – Bernama