Malaysia’s international reserves still strong
PETALING JAYA: Malaysia’s international reserves are expected to face pressure from capital outflows as the country posted the biggest fall year-to-date of US$3.6bil (RM15.86bil) in the first 15 days of this month.
Bank Negara announced that the country’s international reserves fell below the US$110bil mark to US$109.2bil (RM481.03bil) as of June 15 compared with US$112.8bil (RM496.88bil) at end-May.
It is noteworthy that the country’s reserves took a dip just prior to the central bank raising its benchmark overnight policy rate on May 11, but international reserves did not tumble as much.
Economists, however, were not overly concerned about the current plunge in international reserves as the reserves positions is sufficient to finance 5.5 months of imports of goods and services and 1.1 times of short-term external debt.
Although the fall in reserves has raised eyebrows, Sunway University economics professor Dr Yeah Kim Leng was not worried as the central bank has more than three months reserves to finance imports of goods and services.
“Malaysia had weathered declines in international reserves especially during the 2009 global financial crisis that were twice the present decline,” he said.
Although the fall in reserves has raised eyebrows, Sunway University economics professor Dr Yeah Kim Leng was not worried as the central bank has more than three months reserves to finance imports of goods and services.“Malaysia had weathered declines in international reserves especially during the 2009 global financial crisis that were twice the present decline,” he said.
Malaysia has in the past experienced several episodes of large and volatile foreign reserves declines. For instance, during the 2008-2009 global financial crisis, foreign reserves declined by US$38bil (RM167.3bil) during the second half of 2008 and the first quarter of 2009.
Yeah foresees the country’s international reserves to fall further on the back of more foreign fund outflows amid signals of further US rate hikes.
“Foreign fund outflows are likely given the signals of further rate hikes needed to bring down the stubbornly high inflation that is threatening the US economy,” pointed out Yeah.
On the present decline in reserves, Yeah explained the contraction was mainly due to the considerable outflows attributed to the aggressive 75 basis points interest rate hike by the US Federal Reserve.
Economist Manokaran Mottain and advisor for Rising Success Consultancy said the contraction in the international reserves could be viewed as “seasonal volatility” in relations to the strong US dollar and possible capital outflows to foreign fund managers.
“The FBM KLCI has recently seen lower average daily trading. The recent fall in the index was triggered by sell-off in global equities on concerns of aggressive rate hikes by the US Fed. There is capital outflow because of aggressive rate hikes as well as a stronger greenback that has led to Malaysia’s reserves to fall,” he added.
Economist Manokaran Mottain and advisor for Rising Success Consultancy said the contraction in the international reserves could be viewed as “seasonal volatility” in relations to the strong US dollar and possible capital outflows to foreign fund managers.
In a recently weekly fund flow report, MIDF Research said that Bursa Malaysia faced heavy selling by foreign investors that led to a net outflow of RM511.51mil last week from RM436.91mil in the week prior.
The research house said that foreign investors were net sellers every trading day of the week except Tuesday whereby it recorded a net buying of RM9.38mil.
“The steepest net selling days by foreigners were Monday and Wednesday at RM163.20mil and RM146.28mil respectively,” it said.
Yesterday, the FBM KLCI plunged 26.78 points or 1.84% to 1,431.10 at close due to profit taking activities.
Dealers said that investors were concerned about the risk of recession from high inflation.
Mercury Securities projects global equities to remain volatile in the short-term as fears of high inflation are forcing central banks globally to raise rates at a more rapid pace.
Going forward, Socio Economic Research Centre executive director Lee Heng Guie said the volatile capital flows will continue to exert influences on Malaysia’s foreign reserves due to heightened stagflation risk, escalating likelihood of a US recession and uncertainties induced by the US Fed’s aggressive rate hikes.
Going forward, Socio Economic Research Centre executive director Lee Heng Guie said the volatile capital flows will continue to exert influences on Malaysia’s foreign reserves due to heightened stagflation risk, escalating likelihood of a US recession and uncertainties induced by the US Fed’s aggressive rate hikes.
“At the current levels of foreign reserves, I believe Bank Negara will continue to ensure stable foreign exchange currency liquidity and orderly forex market.
“The banking sector of the country also remains strongly capitalised while the domestic capital market is deep and efficient to mitigate the impact of capital flow volatility. We should not be concerned about this fall in reserves,” he said.
