KUALA LUMPUR: Malaysia’s increasing currency reserves are bolstering its defences against market volatility.
The country’s net foreign exchange (forex) reserves rose to US$94.7bil at the end of April, according to the latest central bank data, the most since June 2022.
Strong foreign inflows into local bonds and a weaker greenback, which enabled Bank Negara to unwind its net short forward forex position, both helped.
These factors have strengthened the nation’s bulwark against external shocks.
“The narrowing net shorts in forex forward book, combined with higher headline reserves, means that net reserves are rising at a faster pace,” said Winson Phoon, head of fixed-income research at Maybank Securities Pte, adding that Malaysia’s improving external resilience “helps support ringgit stability.”
The extra buffer may be coming at a fortuitous time.
US President Donald Trump’s tariffs, Sino-American tensions and geopolitical uncertainty have boosted currency volatility, and a weakening of the US dollar has changed the forex dynamic for emerging markets.
As a trade-dependent economy, Malaysia and its currency are particularly vulnerable to trade tensions between its two largest export destinations – the United States and China.
The recent boost in foreign reserves comes partially from the US$5bil foreign inflow into the nation’s conventional government securities in this quarter so far.
That’s on track to be the largest quarterly inflow on record in data going back to 2005.
Global funds have poured in amid optimism over the outlook of the ringgit and on rate-cut wagers, as Bank Negara is the last rate-cut holdout in South-East Asia.
The situation is different from December. Back then, Bank Negara’s net short forward forex book had widened to US$29.2bil – just 0.2% shy of an all-time low – as the central bank utilised currency forwards to support the ringgit. — Bloomberg
