ALL EYES ON HOW MANY BILLIONS BANK NEGARA SPENT TO DEFEND RINGGIT

PETALING JAYA – All eyes are on the next international reserve data to be released by Bank Negara tomorrow to determine how much has been used to defend the ringgit against the US dollar since Nov 11.

Dealers felt that the central bank could have used several billion US dollars to defend the ringgit, which has seen a steep depreciation against the greenback since the surprise election of Donald Trump as the next president of the United States on Nov 11.

The ringgit was not the only currency to depreciate against the dollar. Almost all major currencies weakened against the greenback. Even China, with reserves of more than US$3.2 trillion, adjusted its peg against the dollar to reflect a weaker yuan.

Currency dealers told StarBiz that the last international reserve data was not reflective of the situation, as the changes only came about on Nov 11.

The following two days were on a weekend and Nov 14 was Monday. The reserve numbers came out on Nov 15.

The subsequent two-week period in November saw major upheavals in the currency markets globally. The ringgit and other emerging-market currencies were roiled by Trump’s victory on Nov 9, which spurred the dollar to its highest in 13 years.

The next set of foreign reserve numbers cover the period between Nov 15 and Nov 30.

“The real numbers would only be known in the next reserve figures that would be out on Wednesday,” said a dealer.

The central bank’s foreign reserves amounted to US$98.3bil (RM436.45bil) as at Nov 15, and were announced on Nov 22.

The figure translates to 8.4 months worth of imports and 1.2 times the short-term external debt.

Based on the recent selldown of ringgit assets and capital outflows, the next international reserve numbers are largely expected to decline, according to AllianceDBS Research economist Manokaran Mottain.

However, he felt that it was an immediate-term impact based on global developments, adding that over the longer term, it should improve with the new measures that Bank Negara had put in place.

“It has been hovering around US$97bil for about a year now. But the reserves should go up in the near term over the next three months with the new measures such as compelling exporters to convert the proceeds to the ringgit,” he said.

Based on the three-month gross exports moving average of RM65bil, some US$10bil would be added to the reserves due to the 75% conversion of all export proceeds back into the ringgit by Malaysian corporations, Manokaran added.

The decline in the ringgit is partly due to substantial capital outflows by foreign investors over the past three years as a result of the improving economic prospects elsewhere. Foreign institutions hold about 40% of government bonds and 22% of shares in the local bourse.

In turn, the outflows resulted in a steady decline in the foreign reserves over the same period. Between 2013 and 2015, the reserves fell from US$134.9bil to US$95.28bil, according to Bank Negara’s latest annual report.

Bank Negara’s Financial Markets Committee last Friday announced several measures to spur the conversion of US dollars to the ringgit, hence hoping to increase the demand for the local currency. Among them was that exporters should convert 75% of their proceeds to the ringgit.

Previously, exporters were to bring back the proceeds within three months but could opt to keep the foreign currency within the local financial system without converting to the ringgit.

As a sweetener, the companies are also being offered a special deposit rate of 3.25% for keeping their profits onshore.

The efforts seem to have helped the currency rebound from recent lows. As at 5pm, the ringgit strengthened marginally to RM4.4485 from RM4.4532 yesterday, while at the same time, the offshore forward rate for the currency has largely stabilised .

Last Friday, the central bank announced a slew of measures to stabilise the ringgit.

While the initiatives are a step in the right direction to boost the flagging ringgit, dealers said the impact would only be known in the next few weeks.

ANN

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