KUALA LUMPUR: Malaysian Prime Minister Najib Razak said yesterday that he would not peg the ringgit to the US dollar or implement capital controls as he sought to calm fears about the sliding currency and capital flight from Southeast Asia's third-largest economy.
Najib, who has come under severe criticism after being embroiled in a scandal over indebted state fund 1Malaysia Development Berhad (1MDB), is trying to reassert his leadership over his government and a stumbling economy.
"The flexibility of our exchange rate is important to absorb global adjustments and volatility," he said in a statement.
Najib's comments mirrored remarks made by Bank Negara Malaysia governor Zeti Akhtar Aziz.
Zeti, a widely respected economist, last month denied rumours she had resigned from her post after coming under pressure amid investigations into 1MDB, and said yesterday that she would complete her full term, which ends in May 2016.
A PhD holder in monetary and international economics from the University of Pennsylvania's Wharton School, Zeti was credited by financial experts worldwide for managing the Malaysian economy during two financial crisis in 1998 and 2008.
Having helmed the central bank for the past 15 years, she has pushed for the diversification of the country's economy -- reducing dependency on commodities, branching out into the manufacturing industry and raising domestic consumption.
Economists have lauded Zeti for Malaysia's solid economic fundamentals, despite the ringgit's recent decline over uncertainties in market sentiment.
Analysts said yesterday that Najib's comments would reassure investors rattled by the political turmoil facing the government and by external factors weighing down the economy, but only to an extent.
"It's important that his message is now consistent with the central bank but in the near term we are unlikely to see any significant impact in the markets," said Rahul Bajoria, regional economist at Barclays Capital in Singapore.
"To see a positive impact, it will be global dynamics that make an impact as much as the domestic environment."
The ringgit, Asia's worst performer this year with losses exceeding 17% against the dollar, dropped nearly 1% yesterday despite the comments.
"There's no intention of moving to a less flexible regime like a peg exchange rate regime," Zeti told reporters, adding that fact that international reserves had dipped significantly below the $100 billion threshold was not a cause for worry.
The reserves, now at their lowest since September 2010, have declined $10 billion since the end of May and $20 billion this year.
In 1998, during the Asian financial crisis, then-Prime Minister Mahathir Mohamad imposed capital controls and pegged the plunging ringgit at 3.80 to the dollar. The controls were lifted in 2005.
Najib has faced criticism for taking his eye off an economy suffering from weak global commodity prices and falling domestic consumption.
The 62-year-old, who also serves as finance minister, met economists from local and foreign financial institutions this week, promising to "proactively manage the economy going forward".
At the heart of Najib's woes is 1MDB, which has debts of over $11 billion and is being investigated for allegations of graft and financial mismanagement. Najib sits as the chair of its advisory board.
The prime minister sacked his deputy and other cabinet members last month and replaced the attorney general heading a probe into 1MDB.
His crackdown on criticism has extended to traditional and online media, angering pro-democracy activists.
A rally planned for next week calling for Najib's resignation is expected to draw thousands despite being officially barred by authorities.