Countries around the world urgently need supportive monetary policies until the deadly coronavirus pandemic is in check, by building buffers against fluctuations in external capital flows that could impact financial stability in nations across the globe. In 2020 a vast majority of countries had sharp contractions in economic activities. On the economic policy front, synchronized support that was deployed around the world has helped to mitigate the fallout from this pandemic.

 

The pandemic triggered a great deal of stress in financial markets in early 2020. Central banks, stepped in quickly to ease monetary policy, to provide liquidity backstops, and to contain the fallout from the pandemic on financial markets."

Source: The Economic Times, April 28, 2021

Question:

Analyze the difficulties encountered by the Malaysian government or monetary authorities with a freely-traded currency regime to target the exchange rate as an objective of monetary policy. (6 marks)