No choice but to face ringgit volatility: Johari

KUALA LUMPUR: 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 then, is not practical now in an open global economy as the country will forfeit its economic growth.
Johari said the government will not peg the local currency or impose capital controls despite its recent volatility, and certainly will not increase interest rates 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 yesterday.
Johari said increasing interest rates to attract foreign investors also is never an option as it will raise household debt in this country.
“(If we increase interest rates) the people will be affected as instalment payments will increase, so we don’t have any option except to go through this transition,” he added.
Elaborating, Johari said the fundamental cause of the ringgit’s depreciation is because Donald Trump was elected as the US president.
During his presidential election campaign, Trump made quite a number of rhetoric political statements and promised to focus on a domestic-driven economy, Johari said.
“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 US$2 trillion-US$3 trillion of their investments are in Asean countries.
“In order to bring back this money, they will increase interest rates in the US and, when this happens, our interest rates will become not so attractive,” said Johari.
The 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 added. – Bernama