Saturday July 23, 2005

Malaysia Adopts a Managed Float for the Ringgit Exchange Rate

Bank Negara Malaysia announces today that the exchange rate of the ringgit with immediate effect will be allowed to operate in a managed float, with its value being determined by economic fundamentals. Bank Negara Malaysia will monitor the exchange rate against a currency basket to ensure that the exchange rate remains close to its fair value. Promoting stability of the exchange rate continues to be a primary objective of policy.
Changes in the international and regional financial and economic environment have made it important for Malaysia to have a stable exchange rate against its major trading partners, in particular, the regional countries. Consequently, the stability of the ringgit exchange rate against the regional currencies will become increasingly important. Such stability can best be achieved by maintaining the value of the ringgit against a trade-weighted index of Malaysia’s major trading partners.
This announcement represents a change in the system by which the value of the ringgit is determined. Given that the current valuation of the ringgit is consistent with our fundamentals and after taking into consideration developments in our trading partner countries, the exchange rate after shifting to this new system is not expected to deviate significantly from the current prevailing level.

Bank Negara Malaysia
21 July 2005

Unexpected Announcement Of Ringgit Unpeg Steals Umno Limelight

KUALA LUMPUR, July 21 (Bernama) -- Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz appeared to onlookers to be rushing into the holding room for VVIPs where Prime Minister Datuk Seri Abdullah Ahmad Badawi was in at the end of the first day of the 56th Umno general assembly, Thursday.
This piqued the interest of the waiting reporters who wondered aloud what the central banker was doing at the meeting venue, the Putra World Trade Centre, at about 7pm when the proceedings of the day had just been wrapped up half-an-hour earlier.
Everybody was about to call it a day, what with no news conference scheduled by Abdullah. But Dr Zeti's presence prompted everyone to stay back a little longer.
An innocent joke circulated among reporters that it must have something to do with the ringgit peg.
And that was exactly what it turned out to be when a reporter received a SMS which explained the presence of Dr Zeti at a political gathering.
Dr Zeti came out of the room 15 minutes later escorted by security personnel as reporters and cameramen surged forward to get her comments on her meeting with Abdullah, who is also the Finance Minister.
Clad in a demure green baju kurung, Dr Zeti, in her signature soft voice, confirmed that Malaysia was moving to replace the ringgit's fixed exchange rate to the US dollar with a managed float against a basket of currencies.
She did not give much detail about the move, saying that everything had been posted on the Bank Negara website.
Realising that Abdullah was still inside the room and despite knowing that there would be no news conference by him, the reporters decided to dig in their heels and waited for him to come out to ask about the all-important development of the ringgit.
Once again, they formed a human barricade not far from the room before word went round that Abdullah would be meeting them to talk about it at the designated news conference room, a short distance from the VVIP hall.
Looking dapper in a batik shirt, Abdullah entered the packed room a few minutes shy of 8pm for the much-anticipated news conference.
At exactly 8pm, Abdullah set about calmly to make a formal announcement on the government's decision to the nation via a live telecast on TV3 primetime news.

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