KUALA LUMPUR (May 9): Bank Negara Malaysia (BNM) has been working to pilot a fast-track pre-approval framework for corporates who bring back foreign currency funds and convert to ringgit, to enable them to re-invest abroad when the time comes, according to deputy governor Adnan Zaylani.

The pilot was considered as many corporates found it more expedient not to bring foreign currency balances back, to avoid the approval process for reinvesting abroad, Adnan said.

"For the few corporates that we have engaged on this [matter], the response has been very encouraging, with some even bringing back and converting immediately," he said at the National Economic Forum 2024 on Thursday.

"A conservative ballpark estimate puts the potential annual income conversions alone to be in a range of US$6-US$7 billion. To put that number into perspective, this would have been more than enough to offset our negative net outflows in 2023," Adnan said.

To encourage flows into the foreign exchange market, Adnan said BNM has worked with government-linked investment companies (GLICs), government-linked companies (GLCs), and even corporates and exporters to repatriate and convert their foreign incomes.

BNM has also extended these engagements towards managing their investments abroad and foreign currency balances, he said.

He highlighted that the foreign exchange market volume and two-way flows have improved significantly, indicating a higher level of liquidity. The average daily FX turnover has risen from US$15.5 billion in 2023 to over US$17 billion year to date, Adnan said.

In his speech at the event, Adnan relayed BNM's efforts to manage short-term pressure on the local currency.

BNM has deployed its primary tools to preserve stability and prevent excessive depreciation in the market, although the overnight policy rate (OPR), or capital controls seen during the 1998 Asian Financial Crisis, are not among its options.

"We have been intervening — selling foreign currencies and buying ringgit — and we have been doing so for some time," the deputy governor said.

On the use of OPR, explained that BNM's monetary policy is determined based on the growth and inflation outlook, and that the central bank does not see the OPR as a "good tool to defend the ringgit".

"Instead, raising it to match or exceed the increases in the US Federal Funds rate would harm the economy. Capital controls would also hurt our investment landscape and economy by deterring new and much needed investments from coming in, besides potentially causing capital flight," he argued.

BNM earlier on Thursday decided to maintain the OPR at 3%, as widely expected, citing improving economic activity amid moderate inflation.

BNM has kept the policy rate unchanged for one year now since it was last raised in May 2023 by 25 basis points, bucking recent moves by its counterparts.

The Monetary Policy Committee has three more rounds of meetings this year to decide on the OPR and the next meeting is scheduled to be held on July 10 and 11. Most research firms are expecting BNM to keep the rate intact for the rest of the year.

To receive CEO Morning Brief please click here.