PETALING JAYA: The Malaysia foreign exchange (forex) market remains open and Bank Negara Malaysia (BNM) stands ready to provide liquidity if necessary to ensure orderly market, said BNM.
The central bank, in its statement, warned all licensed banks in the country to avert from facilitating any forex transaction that could be related to offshore ringgit non-deliverable forward (NDF) market activities.
In the statement, BNM reiterated that the ringgit remains as a non-internationalised currency, any offshore trading of ringgit, such as ringgit (NDF) is not recognised.
“The Bank is taking measures to re-enforce existing rules that have been in place to prohibit facilitation of ringgit NDF,” BNM said.
BNM clarified that there is no change in its Foreign Exchange Administration (FEA) rules and there is no introduction of any new measures. It reminds all market participants to observe compliance with the existing FEA rules.
The central bank also urged the public, including foreign fund and asset managers, to contact Malaysian licensed banks for advice and execution of any forex transactions.
“All Malaysian licensed banks will continue to facilitate customers’ request for foreign exchange services subject to compliance to FEA,” the statement said.
“Malaysia continues to welcome real investments and provide all avenues for FX (forex) transactions and hedging requirements onshore,” it added.
The central bank’s statement was issued after the local forex market was thrown into a state of confusion last Friday.
The ringgit’s NDF trading skyrocketed to a record high of RM4.587 against the US dollar as investors scrambled to hedge against the rapid depreciation of the local currency last Friday morning.
Based on the offshore trading market, the ringgit appeared to have depreciated by almost 3% — this is a considerably sharp fall in a currency. The ringgit ended the week at 4.342 against the greenback, down 3.4% week on week.
Banks have found it difficult to price USD/ringgit rates. Some top banking executives told The Edge weekly that BNM had told banks not to provide any USD/ringgit offer quotes above last Thursday’s closing of 4.2802.
The downward pressure on ringgit and emerging market currencies is mainly from the growing selling in the bond market amid expectation that the US Federal Reserve (Fed) may raise interest rate quicker than expected.
US president-elect Donald Trump is expected to take measures, such as tax cut spurring consumer spending — a move that economists opine would result in wider budget deficit in the US. Consequently, the Fed would have to adopt tighter monetary policy, which is raising interest rate, to balance the expansionary fiscal policy.
Since the end of the US presidential election last Tuesday, 10-year US Treasury yields have shot up 29.53 basis points (bps) to 2.15% as at last Thursday (in US trading).
This exerted strong pressures on sovereign bonds in the emerging markets, including Malaysia.
The 10-year Malaysian Government Securities (MGS) yields have risen 28.6bps to 3.94% after the US presidential poll. Rising MGS yields also tend to be correlated with a weaker ringgit as foreign investors repatriate investment money out of Malaysia.
“Given that US treasuries are among the most liquid assets you can hold, if their yields rise, riskier emerging market sovereign bond yields will also have to rise in tandem to prevent capital outflow in order to maintain a decent spread premium between the two,” Tan Eng Kiang, Alliance Bank’s head of financial markets told The Edge weekly.