Offshore ringgit futures may hamper efforts to deepen onshore mart
KUALA LUMPUR: Offshore trading of ringgit futures, such as the one introduced by the Singapore Stock Exchange (SGX), poses a threat to Bank Negara Malaysia’s efforts to deepen the onshore ringgit market, say economists.
Singapore should respect the vision and strategic interest of its neighbouring countries, they said.
“While Singapore has every right to introduce the ringgit futures, there are some justifiable arguments that should be considered, such as visions of sovereign nations, in order not to disrupt the impairment of the economy,” said Sunway University Business School professor of economics, Dr Yeah Kim Leng.
“That is why the concern has been raised. The introduction of ringgit futures offshore could disrupt Malaysia’s policy direction,” he added.
Yeah was commenting on Bank Negara’s statement on Wednesday, which hit out at Singapore for its move to introduce the trading of ringgit futures.
The central bank said the introduction of ringgit futures at SGX and the Intercontinental Exchange was against Malaysia’s foreign exchange administration (FEA) policy.
A contravention of the FEA is an offence under the Financial Services Act 2013 and Islamic Financial Services Act 2013.
MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor said as ringgit was a non-internationalised currency, market participants should only access it via the onshore foreign exchange (forex) market to meet their financial needs.
“Bank Negara’s stance on ringgit derivatives products in the offshore market is crystal clear.
“The introduction of ringgit futures at SGX is indeed against and inconsistence with our FEA policy,” he told NST Business yesterday.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid raised his concern on excessive speculative activities from such offshore trading.
He said the essence of futures markets was for hedging mechanism and the presence of speculators was part and parcel of it in order to provide liquidity to the markets.
Along the way, there are also arbitrageurs that would gain from the inconsistencies between the spot and futures markets.
“Therefore, the concern is on the possibility of excessive speculative activities that may have bearing on the onshore ringgit markets.
“So, the situation could be similar to the non-deliverable forward (NDF) markets, in which Bank Negara has taken several measures, in consultation with the market players, to restore the stability of the ringgit,” he said.
As part of Bank Negara’s effort to curb the influence of the NDF market, it has directed local and foreign banks to refrain from dealing in ringgit in trade settlements done in the NDF market abroad. Farah Adila