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  • Writer's pictureBait Al-Amanah

Good policies needed to help ringgit recover

Recently, Malaysia's Economy Minister Rafizi Ramli says the government does not have any immediate plans to intervene in the ringgit’s decline. Benedict Weerasena (Research Director of Bait Al Amanah) was interviewed by Free Malaysia Today on this matter.

Here is the full transcript of his response:


The Government’s plan to not intervene to support the ringgit is a wise move. Malaysia should continue its flexible and market-determined currency, instead of pegging it to the US Dollar. A flexible ringgit exchange rate in the current scenario plays an important stabilising role in the economy. It helps the economy to adapt better to changing conditions and facilitates appropriate external sector adjustments, which is very crucial in a volatile external environment. Moreover, this flexibility buffers the Malaysian economy from the worst impacts of economic shocks.


Economies are presented with the Impossible Trinity, a conjecture that a country cannot simultaneously maintain free capital movement, a fixed currency exchange rate, and an independent monetary policy. Only two out of these three goals can be mutually consistent and policymakers have to decide which third goal to give up. In Malaysia, we have chosen to maintain an open capital account, where capital is allowed to flow freely and preserve the independence to set our own monetary policy. Hence, our currency exchange rate is flexible. If we were to choose to peg our ringgit instead (fixed exchange rate), we will need to give up our independence to set monetary policy, in which the interest rate will need to be raised from the current 3% to match the current Federal Funds rate at 5-5.25%, which will result in far worst repercussions.


Instead, the government’s focus on building economic capacity and infrastructure is the right move to strengthen the ringgit in the long term. This includes the need to enhance competitiveness and pursue sound, credible and business-friendly economic policies which will increase Malaysia’s investment attractiveness.


For the full article which incorporates views from other Economists as well, click here.

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