There is some talk in the market about Malaysia re-establishing the ringgit peg.  We downplay the notion, and do not think it has the support of government policy-makers since central bank Governor Zeti and new Finance Minister Najib both spoke out strongly against the peg today.  Zeti said that repegging would be harmful to the economy and that a floating exchange rate provides stability, while Najib said the authorities have no intention of repegging.  Najib just last week swapped the post of Finance Minister for Defense Minister with Prime Minister Abdullah Badawi, and so Najib is clearly signaling policy continuity.  Abdullah also agreed to hand over the leadership reins to Najib by June 2010, but left open the possibility of an even earlier date.

Note that newswires are reporting that the proposal to repeg was put forth by none other than former PM Mahathir, who instituted the peg during the Asian crisis. Mahathir's proposal was backed by Minister of International Trade and Industry Yassin. Mahathir and his followers are locked in a power struggle with the Abdullah faction, with the latter coming under fire for significant losses in elections earlier this year.  Mahathir has been calling for Abdullah to step down.  After all, it was Abdullah who scrapped the peg back in July 2005.  Yassin has also called for Abdullah to step down, which cements our view that it was a calculated political move to undermine confidence in Abdullah.