KUALA LUMPUR: Bank Negara Malaysia’s net short positions in April suggested that capital outflows during the month were largely met via the bank’s US dollar borrowing from the banking system through foreign exchange (forex) swaps to mitigate the drawdown on external reserves, said Maybank Investment Bank Bhd.
Maybank IB said the net short positions in forwards and futures of foreign currencies vis-à-vis domestic currency (including the forward leg of currency swaps) had increased to US$9.7 billion from US$6.9 billion in March.
It said the figure had been volatile so far this year – US$2.6 billion drop to US$8.0 billion in January 2018, US$600 million rise to US$8.6 billion in February 2018, US$1.7 billion drop to US$6.9 billion in March 2018 and US$2.7 billion rise to US$9.7 billion in April 2018.
This compared with the sustained declines during second quarter (Q2) 2017 to Q4 2017, such as from the high of US$19.1 billion in April 2017 to US$10.1 billion at end-2017.
Maybank IB said the rise in Bank Negara’s net forex short positions recorded in April may continue in May as external reserves only fell US$900 million last month versus the RM18.5 billion (US$4.7 billion) foreign net sell of both equities and bonds.
While external reserves fell by US$900 million to US$108.5 billion in May 2018, trade flows remained supportive of external reserves via the repatriation of export earnings, where surplus increased to RM46.4 billion in January to April 2018 versus RM27.5 billion recorded in the same period last year.
“We expect a larger trade surplus of RM123.2 billion this year (2017: RM97.2 billion) to provide fundamental support to external reserves amid the volatile portfolio capital flows,” it said.
Maybank IB said the decrease in Bank Negara’s external reserves was due to foreign selloffs in local equity and bond markets following increased risk aversion towards emerging markets as well as domestic political developments and policy implications in the aftermath of the 14th general election that resulted in the change in government.