Bank Negara takes steps to increase demand for ringgit

Stronger ringgit: Year-to-date, the ringgit has gained 2.05% against the US dollar, which makes the Malaysian currency one of the top performers in the region so far this year.

PETALING JAYA: Bank Negara announced several measures to increase the demand for the ringgit and reduce its volatility against the US dollar.

Among the measures are that exporters are to convert 75% of their proceeds into ringgit effective Monday.

At the moment, exporters are required to bring back their proceeds into Malaysia within three months of completing a transaction.

However they are allowed to hold the proceeds in foreign currencies.

As such most companies tend to hold their export proceeds mainly in US dollar with local banks, with the view that the dollar tends to appreciate in the longer term.

This has contributed to the weakening of the ringgit against the US dollar. Since early this year, the ringgit weakened by 3.72% against the US dollar.

“Effective Monday, exporters are required to convert 75% of their proceeds into ringgit after bringing the money back here,” Bank Nega­ra’s assistant governor Adnan Zay­lani told a media briefing here yesterday.

The central bank said that as an incentive, companies could place their proceeds from exports in local banks and earn a special deposit rate of 3.25% per annum.

The amount held by exporters in foreign currencies is estimated to be closer to RM90bil.

At current exchange rate of dollar and ringgit, the gradual conversion of the export proceeds could result in Bank Negara’s reserves increasing by more than US$18bil (based on an exchange rate of RM4.44 to the dollar).

Bank Negara’s measures were immediately felt in the offshore market.

For the first time in recent weeks, the ringgit strengthened against the US dollar in the offshore market closing at RM4.44 yesterday evening.

In the domestic market, the ringgit closed at RM4.45 against the dollar, weakening marginally.

A dealer said that the traders in the offshore market were reducing their exposure, anticipating that it could be less important in the short term.

Adnan, who heads Bank Negara’s Financial Markets Committee, said that between 2011 and 2015, only 1% of the proceeds from exports were converted into ringgit.

“Previously, between 2006 and 2010, some 28% of total proceeds from exports were converted to ringgit,” he said.

Other measures to increase the demand for the ringgit include placing a cap on the amount that companies and individuals can invest locally or abroad in foreign currencies.

At the moment, companies and indivi­duals with loans tied to local banks can only invest a certain amount abroad for instance to purchase companies or properties.

For companies with loans, the limit is RM50mil while for individuals, it is RM1mil.

However, there are no restrictions for companies and individuals if they want to invest in foreign currency assets in the domestic market.

“Companies and individuals tend to buy US dollar bonds or investment instruments sold by local banks by taking borrowings from local banks. Now there will be a cap on this,” said a dealer.

Effective Monday, local companies and individuals with borrowings can only invest up to RM50mil and RM1mil respectively in foreign currency denominated assets in the domestic market.

Bank Negara also announced measures to help fund managers manage their portfolio of investments against the volatility of the US dollar-ringgit movement.