KUALA LUMPUR (Sept 27):  FTSE Russell will keep Malaysia on a watchlist for exclusion from its World Government Bond Index, signaling that policy makers need to do more to deepen the ringgit debt market.

Malaysia’s currency and bonds have been under pressure since April when FTSE said it may exclude ringgit debt due to accessibility issues. The central bank has announced a slew of measures to deepen onshore markets as analysts estimated outflows could reach at least $5 billion if the nation was dropped.

Still, Bank Negara Malaysia has stopped short of reversing a ban on offshore currency trading, which some investors say makes it harder to hedge.

FTSE’s decision could further weigh on Malaysian assets with sentiment already damped by slowing global demand for the nation’s tech and commodities exports. The ringgit slumped to the weakest in almost two years this month and foreign ownership of bonds and bills is near the lowest since 2011.

“From the perspective of foreign investors, Malaysian government bonds could offer an attractive balance between yields and risks,” Duncan Tan, a strategist at DBS Bank Ltd., said before the decision. “Short-term impact on Malaysian government bonds and the ringgit should be quite limited.

FTSE’s announcement comes after Malaysia’s weighting in JPMorgan Chase & Co.’s GBI-EM Global Diversified Index was cut to 5.17% from 6.12% as part of a broader revamp to make room for China’s bonds. Maybank Kim Eng Securities estimated the reduction could lead to $2.4 billion of outflows from ringgit securities.

In April, Norway’s sovereign wealth fund dropped Malaysian bonds from its index as it reduced exposure to emerging-market debt.