Wednesday, October 20

Malaysian forex reserves set to hit US$100 bln mark

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KUCHING: Malaysia’s foreign exchange (forex) reserves are poised to hit the US$100 billion mark as forex reserves rose by US$500 million to US$99.4 billion in July.

In a recent economic update, RHB Research Institute Sdn Bhd (RHB Research) pointed out that this increase was mirroring the inflow of foreign funds into Malaysian equity markets during the month, and that current levels were deemed adequate by international standards.

“As it stands, foreign investors have been net buyers in the Malaysian equity market for the seventh month in a row, totalling at RM10.8 billion year-to-date as of July 31.

“At current levels, the forex reserves are sufficient to finance 7.9 months of retained imports – lower compared to 8.1 months a year ago.

“Similarly, the reserves covered 1.1 fold the short-term external debt of the nations, slightly lower to 1.2 fold a year ago,” reported the research house.

On the currency front, our Ringgit has seen stability at the RM4.280 per USD level in the first week of August, after strengthening by 0.4 per cent for the entire month of July.

According to RHB Research, this was mainly due to the weaker USD as the US Feds maintained its policy rates during its July 26 meeting where Fed Chair Janet Yellen took a dovish stance on future rate hikes.

“At the same time, sentiment over USD also weakened due to the diminishing confidence over US President Donald Trump’s ability to push through his fiscal reform,” said the research house.

The firm believed the ringgit was previously overshot on the downside due to the initial USD strengthening from Trump’s presidential victory.

Possibly in response to this, Bank Negara Malaysia’s (BNM) US$ short position has also remained high at RM16.6 billion at the end of June, slightly reduce from RM16.8 billion at the end of May as the central bank continue to unwind its short position gradually.

Meanwhile, the excess liquidity mopped up by BNM remained at an estimated RM131.8 billion in July from RM131.6 billion in June. Liquidity mopped through repos, however, declined heavily at RM1.2 billion in July from RM1.8 billion in June.

Looking forward with an expected strong growth rate for our economy, RHB Research is anticipating the Ringgit to further recover gradually.

Key risks to this view is however, rooted in the volatility of oil prices; vulnerability from large foreign holdings of fixed income instruments in the country; and expectations of further US Fed rate hikes and shrinking US balance sheets.