Dr Mahathir says ringgit's fair value is same as Asia-crisis peg

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KUALA LUMPUR (June 22): Prime Minister Tun Dr Mahathir Mohamad said the Malaysian ringgit’s fair value today is the same as the peg that his previous government established in 1998 in a controversial move during the Asian financial crisis.

Asked in an interview Friday where he saw the fair value for the ringgit, Dr Mahathir said “3.8.” That’s more than 5% stronger than its current level against the dollar, and a rate it hasn’t seen since mid-2015, when worries about China hit emerging markets. The currency climbed 0.3% after his remarks were published.

“We would like to strengthen our ringgit, but it should be done naturally,” said Dr Mahathir, the architect of capital controls in 1998, that ultimately were seen to help stabilize the nation’s economy though were criticized then by the International Monetary Fund. He didn’t elaborate on steps needed to allow for natural appreciation.

He indicated in the Kuala Lumpur interview that the currency is being unfairly punished by the stresses buffeting most emerging markets. An appreciating dollar, propelled by Federal Reserve monetary tightening, along with worries over a US-China trade war have hurt demand for developing nation assets.

“This is actually the problem arising from the state of the world’s economy, not just ours,” said Dr Mahathir of the ringgit’s current valuation.

Dr Mahathir also announced a new central bank governor, read about that here.

Dr Mahathir, 92, took office last month after a surprise election victory more than 14 years after he had stepped down as prime minister. His new administration’s warnings that Malaysia’s debt is much larger than estimated by the previous government have made some foreign investors wary.

The benchmark stock index is down 8.5% since the election, or 9% in dollar terms, against a 5.3% drop for the MSCI Emerging Markets Index.

Even so, forecasts since the election show strategists do see the ringgit appreciating in time. The median estimate in a Bloomberg survey is 3.95 for year-end. Projections indicate it will stay weaker than 3.80 in coming years, however. It was at 4.0025 as of 2:13 pm in Kuala Lumpur.