KUALA LUMPUR: Foreign outflows from ringgit bonds might have totaled RM12.4bil in March, based on Bank Negara Malaysia’s annual report data, Maybank Investment Bank Research said.
It said on Monday there was a total of RM18bil of portfolio outflows in March. As foreign net selling of equities amounted to RM5.6bil, the foreign holdings of ringgit bonds might have declined by RM12.4bil in March.
“No breakdown of flows by debt instrument is available currently. For illustration, if we attribute the RM12.4bil total outflows based on a ratio of 75%/15%/5%/5% to MGS/GII/PDS/Discount Instruments respectively, this translates into outflows of -RM9.3bil/-RM1.9bil/-RM600m/-RM600milrespectively.
“Based on the same set of assumptions, the foreign share of MGS could have dropped to 37.6% (Feb: 39.6%),” it said.
Last Friday, Bank Negara’s annual report showed the amount of outstanding ringgit liquidity placed with Bank Negara fell by RM4.9bil to RM156bil in March (Feb: RM160.9bil). This compares with a cyclical high of RM376.9bil in May 2013 when foreign positioning in Ringgit assets was probably at its peak.
“On a YTD basis, surplus liquidity fell by RM12.9bil compared with a full-year decrease of RM16.1bil in 2019. The decline shouldn’t be seen a cause for alarm, as the amount of liquidity remains sufficient, in our view. “Surplus liquidity serves as a buffer, consisting largely of overnight money market placements with Bank Negara accumulated through its daily cash sweep in the banking system.
“Because of the excess liquidity position, this probably explains why Bank Negara doesn’t usually need to conduct large cash injection into the market through open market operations, like what the People’s Bank of China (PBOC) does. “An area to monitor, going forward, is probably portfolio flows as large outflows tend to cause net drain on the liquidity position,” it said.
Maybank Research said revisiting past outflow periods, the outstanding ringgit liquidity placed with Bank Negara 1) dropped by -RM174bil cumulatively between April 2008 and March 2009 during the global financial crisis, and 2) fell by -RM137bil cumulatively in the two years that followed quantitative easing (QE) taper in May 2013.
It also noted the amount of foreign holdings with low stickiness in local bonds has likely reduced following the Bank Negara enforcement of ban on offshore Ringgit non-delivery forward (NDF) trading in November 2016, reducing the vulnerabilities.
Additionally, central banks can conduct more open market operations to inject liquidity if needed, such as through Bank Negara reverse repo, FX swaps and direct purchases of government bonds. SRR forms part of the outstanding liquidity.
“As an update, following the 100bps statutory reserve requirement (SRR) cut to 2% and a calculation tweak on March 19, the amount of cash reserves that are held for SRR purpose probably amount to about RM16bil.
“In theory 2.00% of SRR reserves should total close to RM30bil, but may need to be reduced by the amount already released through recognising up to RM1b of MGS and GII for SRR compliance,” it said.
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