Malaysia aims to keep its currency stable and has not set any trading band for its value, the country's second finance minister said on Sunday, three days after Malaysia moved to a managed float of the ringgit.
"The central bank's rule in the managed float is, of course, to make sure that there is stability, there is no undue volatility in any single period," Nor Mohamed Yakcop, a principal architect of the ringgit's old peg to the dollar, told reporters.
"And the central bank is very well equipped to do it. The government does not fix the rate any more, it is just more of ensuring that there is stability, not too much volatility. Certainly the exchange rate should reflect the fundamentals."
He said there was no undisclosed official level or trading band for the ringgit.
On Thursday the central bank scrapped the seven-year-old peg of 3.8 to the US dollar and followed China in moving to a managed float. But the bank has not given any other specific guidance other than to say 3.8 was already around fair value.
The ringgit was last quoted on its first day as a managed-float currency on Friday at 3.778 to the dollar, less than 0.6 percent stronger than its old, fixed rate. Traders said the central bank had intervened to prevent a rapid appreciation.
Malaysia fixed the ringgit to the dollar in September 1998, at the height of Asia's financial crisis, and the tactic helped the country weather the crisis, but it is now widely thought by economists to be about 10 percent undervalued.
As the US dollar weakened and Malaysia's trade surplus ballooned last year, the cheap ringgit threatened to push up import costs and exacerbate inflation, already under pressure from soaring crude oil prices. Inflation is now running at six-year highs.
Nor Mohamed, speaking after opening a new customs centre, described the move to a managed float as good for the economy and said that even the impact on major exporters would be muted.
"In the long run, it's good for everybody. In the short run, certainly there are more winners than losers," he said.
"The net effect for the economy, now that we have gone into this managed float, is very, very positive," he added. "Exporters will not be badly hit because many of the exports in Malaysia also have large amounts of import content. In the electronics sector for example, 85 percent of the exports is import content." Electronics make up about half of total exports, the main driver of the economy.
Nor Mohamed confirmed there was no plan to lift controls on offshore trading in the ringgit, a legacy of the fixed-rate regime seen by the authorities as vital for currency stability.
"There is no specific programme to internationalise the ringgit. There is no intention," he said.
The prospect of a ringgit revaluation drew in large inflows of foreign capital in domestic bond and stock markets last year, with speculators betting that Malaysia would move once China led the way and allowed the yuan to appreciate.
But, fortunately for Malaysia's central bank, some gave up the wait for a change in ringgit policy and sold their Malaysian holdings, so there was no big wave of profit-taking when the move finally came late last Thursday.
Instead, the share market hit a five-year closing high on Friday and foreign investors also bought into local treasury bills, dragging down short-term yields, on hopes of further ringgit appreciation in the days and weeks ahead.
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