Malaysia rules out capital controls, currency peg as ringgit trades near 24-yr low

© Reuters. A general view of the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia, July 31, 2019. Picture taken July 31, 2019. REUTERS/Lim Huey Teng

KUALA LUMPUR (Reuters) – Malaysia will not impose capital controls or peg the ringgit to the U.S. dollar, the central bank said on Friday, as the currency trades near a 24-year low.

The ringgit has dropped nearly 9% this year, in line with a slide in other emerging market currencies, as the U.S. dollar has strengthened.

“Rather than resorting to capital controls or re-pegging of the ringgit, the policy priority now is to sustain economic growth in an environment of price stability and to further strengthen domestic economic fundamentals through structural reforms,” Governor Nor Shamsiah Mohd Yunus said in a statement.

“This will provide a more enduring support for the ringgit,” she added.

The central bank also said it will continue to closely monitor and ensure orderly financial market conditions amid a stronger dollar.

The ringgit was trading at 4.568 to the dollar on Friday. It had fallen to 4.569 on Thursday, its lowest since January, 1998.

In 1998, during the Asian financial crisis, Malaysia had pegged the ringgit at 3.8 to the U.S. dollar and imposed capital controls. It was eventually removed in 2005.

This week, Malaysia’s finance minister Tengku Zafrul Aziz also ruled out pegging the ringgit, saying such a move would be very risky and result in capital outflows.

Malaysia’s economy is gradually recovering from impacts of the pandemic, though global risks are set to weigh on future growth.

The economy grew at its fastest annual pace in a year in the second quarter, boosted by expansion in domestic demand and resilient exports.