KUALA LUMPUR: Bank Negara Malaysia’s foreign reserves are likely to remain stable with the measures to develop the onshore forex market and the trade surplus position in the first half of the year, said economists.
Foreign reserves increased to US$95.4 billion as at end-March, an increase of US$0.4 billion which is equivalent to 8.3 months of retained imports and 1.1 times of short-term external debt.
This was despite the sharp selling of RM26.2 billion of local bonds by foreigners last month which marked the largest monthly selloff since 2011,commented UOB Bank economist Julia Goh.
She said foreigners bought RM4.3 billion worth of local equities in March, marking the third month of net buying.
“The sustained bond selling weighs on the local currency but domestic markets remain stable.”
The impact of selloffs are cushioned by the strength of local institutional funds with EPF raising its holdings of government securities and since BNM implemented the requirements for exporters to convert at least 75 per cent of their export proceeds into ringgit.
This has increased the supply of dollars which helps buffer foreign reserves.
The external debt runs at RM908 billion or 73.9 per cent of GDP at end-2016, of which 59 per cent is medium to long-term external debt and 41 per cent is short-term.
AffinHwang Capital Research expects the reserves to continue to benefit from continued trade surplus position in the first half this year.
The country’s monthly trade balance surplus widened from RM4.74 billion in January to RM8.71 billion in February, with the cumulative trade surplus increasing by 5.5 per cent year-on-year to RM13.4 billion in the first two months of 2017.
The research house said reserves were supported by some net foreign buying activity in equity market, but may have been offset partly by some selling in foreign bond holding, especially in Malaysian Government Securities (MGS).
This may be due to the decision by US Federal Reserve to hike fed funds rate in March and some expectations of a faster pace of policy rate normalisation in the US.
“With several measures announced by BNM in early December 2016 to further develop the country’s onshore forex market, involving the liberalisation and deregulation of the onshore ringgit hedging market, as well as incentives and treatment of export proceeds, we believe Malaysia reserves will likely remain stable.”
This was particular with the measure which requires exporters to repatriate their export proceeds and convert 75 per cent of their new export proceeds to ringgit, will support reserves level and the country’s economic fundamental going forward.
Last week, Second Finance Minister Datuk Seri Johari Abdul Ghani noted that the government will unlikely be introducing further steps to curb the movement of the ringgit.