At 9 am(0100gmt), the local unit opened at 4.0480/0510 against the US dollar from Monday's 4.0600/0650.
KUALA LUMPUR: Moody’s Investors Service expects Bank Negara Malaysia’s new measures to its foreign exchange administration could foster greater currency stability in the near term by reducing the steps involved in retaining earnings within the country.
The international rating agency said the measures allowed greater flexibility in managing export proceeds and hedging foreign currency obligations.
Moody’s said these measures differed from measures implemented by governments to foster currency stability that often resort to restrictions to curb capital outflows.
“Over the longer term, these measures will facilitate the deepening of onshore markets and introduce greater sophistication around the availability of risk management tools to limit currency volatility,” it said.
Bank Negara had on Aug 18 announced changes to the forex administration. The measures build on regulations announced at the end of 2016 that required exporters to convert three-quarters of their proceeds to ringgit and restricted transactions in the offshore non-deliverable forwards market.
“While they do not reverse those measures, they could foster greater currency stability in the near term by reducing the steps involved in retaining earnings within the country,” it said.
Moody’s said that like several other currencies in the region, the ringgit had weakened over recent months in the context of increasing concerns around the pace and extent of a global rise in interest rates and trade protectionism, exacerbated by investor uncertainty about the new Malaysian government’s policy stance and priorities.
The currency has depreciated 6.0% against the dollar since the end of March.
“Given Malaysia’s high degree of trade openness and its important role in the regional supply chain, the economy is exposed to potential negative spillovers from the ongoing trade dispute between the US (Aaa stable) and China (A1 stable).
“The regulations announced by the central bank include allowing exporters to immediately transfer proceeds to separate onshore accounts to meet up to six months' foreign currency obligations, without having to first convert the proceeds into ringgit.
“The measures should help to limit currency and broader financial market volatility by making it easier for companies to retain earnings within the country, and contain the sovereign's vulnerability to external risks.
“In addition, the new rules should increase the flow of hedging transactions, a positive for bank profitability.
“The new rules will have implications for financial institutions and companies. By allowing greater flexibility in the use of export proceeds to meet outstanding foreign currency obligations, exporters can reduce the overall cost of hedging.
Lower hedging costs will support businesses' profitability and their ability to manage foreign exchange risks and service bank debt.
Moreover, domestic banks can now offer ringgit-denominated interest rate derivatives to non-resident companies in addition to resident companies.
“Similar to the earlier move in December 2016 to increase the liquidity of the onshore foreign exchange market, we expect the new rules that broaden access to interest rate derivatives to a larger group of businesses to boost market activity and income opportunities for banks over time,” it said.
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