Tuesday 19 Mar 2024
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KUALA LUMPUR (Dec 5): Bank Negara Malaysia (BNM)'s new measures to enhance liquidity of the onshore foreign exchange is seen as a pre-emptive measure to stabilise the ringgit against the rising strength of the US dollar (USD) and ensure a steady demand for the ringgit, according to a note released by UOB Global Economics and Market Research today.

"While the latest measures could offer a near-term boost for ringgit, we still think the key driver will be US yields in 2017. We expect USD/MYR at 4.35 by mid-2017," the research house said.

Among the new measures, which will take effect today, are the flexible hedging of the USD dollar and renminbi, the hedging of foreign exchange exposure for fund managers without documentation up to 25% of invested assets and new requirements for exporters to convert 75% of export proceeds to ringgit.

"We think the new requirements on exporters to retain maximum of 25% (previously 100%) in foreign currency and requiring 75% of proceeds to be converted into ringgit will enhance demand for ringgit and help buffer BNM's foreign reserves," the firm added.

It also added that of late, emerging markets are adjusting their policies to adapt to changing forex market conditions to safeguard against exchange rate risks and volatility, so Malaysia is not alone.

The new measures also include onshore banks offering a special 3.25% per annum deposit facility to resident exporters who convert export earnings into ringgit. Further, all settlements for domestic goods will be made fully in ringgit.

"Assuming annual trade surplus of around RM80 billion, the new regulation infers RM60 billion (US$13.6 billion, USD/RM4.4) will be converted into ringgit. Alongside measures to streamline treatment of investments in foreign currency assets will taper onshore foreign currency balances," the firm said.

"The measures to liberalise and broaden accessibility to onshore foreign exchange market are extended efforts to curb speculative ringgit trades," it added.

 

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