Malaysia's international reserves up by RM2.6bil

Malaysia

PETALING JAYA: Malaysia’s international reserves position improved for a second time as at mid-September, gaining US$600mil or RM2.6bil amid volatility in the currency markets stemming from speculation over a US rate hike and fears of a more serious slowdown in Chinese growth.

Prior to the mid-September improvement, the reserves position had improved as at Aug 28 by US$200mil compared with the previous two weeks when the currency fell to the lowest levels against the US dollar since the 1997/1998 Asian financial crisis, data from Bank Negara showed.

However, the ringgit remains under pressure, closing at 4.304 to the US dollar yesterday after gaining ground last week following the US Federal Reserve’s decision not to raise the benchmark rate. The greenback has strengthened by more than 23% against the ringgit year-to-date.

“The reserves position is sufficient to finance 7.3 months of retained imports and is 1.1 times the short-term external debt,” the central bank said in a press statement.

Citigroup Inc forex strategists said in a report before the release of the reserves data that they continue to have a neutral stance on both the ringgit and interest rates for now. Bank Negara last hiked the overnight policy rate (OPR), by 25 basis points to 3.25%, on July 10 last year.

Policymakers have refrained from another hike in the OPR since then on uncertain global growth and weakening domestic private consumption stemming from the introduction of the goods and services tax.

The Citigroup strategists said Bank Negara’s confidence in rebuilding foreign reserves favoured risk-reward in buying US dollar on dips.

“This may have reduced the overhang of shorts but the overall positioning bias still seems to be for a weaker ringgit. Given thin market liquidity conditions, this leaves ringgit exposed to shifts in global risk sentiment. Real money investors may retain bearish ringgit overlays and add to currency hedges. We acknowledge that fundamental setup for Malaysia isn’t as bad as some fear. But improvement in political news-flow is critical for stabilisation of investor sentiment.”