Malaysia tries to protect its weakening currency
HONG KONG: Foreign banks have been asked to make a written commitment to Malaysia’s central bank to stop trading the ringgit in the offshore non-deliverable forwards market in the bank’s latest move to protect a weakening currency, banking sources said. Foreign banks have been sent a form letter to sign, which asks them for an “unconditional representation and commitment” to stop trading in any offshore Malaysian ringgit non-deliverable forwards or offshore derivatives. The letters were sent by banks in Malaysia who hold bonds and other Malaysian assets as custodians for foreign banks. The form letters are addressed to Bank Negara Malaysia. Two separate sources at banks confirmed getting the form letter, which Reuters reviewed.
The letters also asks financial institutions to provide a detailed plan to the central bank if they need to make ringgit transactions onshore and to seek help from Malaysian financial institutions for any foreign exchange transaction needs. Bank Negara in a statement to Reuters yesterday confirmed it has made the request through banks in Malaysia. “Bank Negara Malaysia has requested through onshore banks that any non-resident banks, which transact in the forex market, to attest that they are not and will not engage in NDF related transactions,” the Bank Negara statement said.
Foreign holdings account for 40 percent of the total outstanding bond market in Malaysia, one of the largest foreign ownerships in Asia. Foreigners have been fleeing the Malaysian market in a global bond rout following Donald Trump’s election as US President last week, which sent the dollar soaring and has hit emerging market currencies particularly hard. Trump is expected to adopt policies that are likely to increase interest rates faster than previously thought. Investors typically use the liquid NDF markets in Singapore and Hong Kong to exchange ringgit for dollars because of the many restrictions in the domestic market.