Economist: BNM’s foreign reserves now healthy, well governed
KUALA LUMPUR: Bank Negara Malaysia’s current international reserves are healthier and well governed, said an economist.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the reserves’ rise in recent years implied the central bank’s ability to ward off any potential threats arising from the volatility in the exchange rate to the country’s balance of payments.
Bank Negara’s international reserves recently hit a two-year high at US$102.2 billion (RM417 billion) as of Dec 15.
It is 0.39 per cent higher than the US$101.90 recorded as of Nov 30.
Bank Negara said the reserves’ position was sufficient to finance 7.5 months of retained imports and is 1.1 times the short-term external debt.
Afzanizam said the strength of the country’s international reserves was dependent on the assessment of the reserve adequacy.
Bank Negara had ensured good governance on international reserves and this had been recognised by the International Monetary Fund (IMF), he added.
“The question of whether each country would have different level of reserve adequacy, depends on the extent of maturity of its financial market and currency regime i.e. fixed or floating.
“The traditional measures seem to be sufficient, but one of the qualities that one should observe in assessing the reserve adequacy is the deepening of the capital and financial markets,” Afzanizam told the New Straits Times.
Traditionally, the measurement of reserve adequacy is usually larger than foreign reserves to imports and shortterm debt.
Afzanizam said the recent IMF Article IV report indicated that the country’s reserve level was adequate. Therefore, the management of reserve was prudent.
IMF highlighted that not all short-term external debts constituted a claim on foreign reserves and domestic financial institutions and this could also help mitigate the risks, he added.
“As such, we should not be focusing too much on the common ratios, such as foreign reservesto-imports and short-term debt, in order to arrive at our conclusion on foreign reserves adequacy,” Afzanizam said.
Second Finance Minister Datuk Seri Johari Abdul Ghani said, in his open letter to former Prime Minister Tun Dr Mahathir yesterday, international reserves had continued to strengthen.
He said despite volatility of capital flows and the ringgit in the recent period, the economy continued to remain resilient and Bank Negara’s ability to safeguard the financial and economic stability remained uncompromised.
“Bank Negara and the country have since come a long way, particularly in instituting the necessary reforms and checks and balances with regard to its foreign exchange forward transaction activities.”