Ringgit offshore NDF trading declines 70pc after BNM measures
KUALA LUMPUR: Malaysia is succeeding in snuffing out currency speculation — now it has to deal with the fallout.
Offshore trading in ringgit nondeliverable forwards (NDFs) had slumped by about 70 per cent since the central bank took steps last November to deter foreign banks from trading the contracts, according to EBS BrokerTec’s electronic-trading platform. Now, officials are looking at easing rules on the short-selling of government debt after the crackdown saw global funds withdraw more than RM35 billion out of Malaysian sovereign bonds in the four months through last month.
Spurred by an uptick in ringgit volatility in the second half, Bank Negara Malaysia’s campaign is biting after local lenders were told not to facilitate currency transactions related to offshore ringgit market activities. After sliding to a 19-year low in January, the ringgit has clawed back, trading near a four-month high as swings abate. One-month implied volatility on the currency fell to the lowest level since 2014 this month, while the ringgit’s 1.5 per cent advance this year trails gains for its peers in Thailand, India and South Korea.
The plan to allow firms and insurers to short sell sovereign bonds was aimed at deepening the domestic financial markets and reviving interest in debt, said assistant governor Adnan Zaylani Mohamad Zahid last week. The central bank continued to provide liquidity to the ringgit market, which was still adjusting to the curbs, he said. The authorities have set a three- to six-month timeframe for stabilisation.
A Bloomberg index of Malaysian local sovereign debt has climbed 1.6 per cent this year, versus a 5.6 per cent jump in a similar gauge for emerging-market government bonds.
While ringgit NDF trading languishes, markets elsewhere are brisk. Trading in NDFs on the Indian rupee, South Korean won and Taiwan dollar had shown “significant year-on-year growth”, on EBS’s trading platform, said Ward. Asian currency NDF trading has been around since the 1990s, according to the Bank for International Settlements. Bloomberg
The ringggit claws back after sliding to a 19-year low in January.