Maybank IB: Capital outflows largely met via Bank Negara’s US dollar borrowing

KUALA LUMPUR: Bank Negara Malaysia’s net short positions in April suggested that capital outflows during the month were largely met via the central bank’s US dollar borrowing through foreign exchange (forex) swaps, said Maybank Investment Bank Bhd (Maybank IB).

It said this was to mitigate the drawdown on external reserves.

Maybank IB said the net short positions in forwards and futures of foreign currencies, vis-à-vis domestic currency (including the forward leg of currency swaps), had increased to US$9.7 billion (RM38.7 billion) from US$6.9 billion in March.

It added that the figures had been volatile so far this year — US$2.6 billion drop to US$8 billion in January, US$600 million rise to US$8.6 billion in February, US$1.7 billion drop to US$6.9 billion in March and US$2.7 billion rise to US$9.7 billion in April.

This compared with the sustained declines from the second quarter to fourth quarter of last year, such as from a high of US$19.1 billion in April last year to US$10.1 billion at the end of last year.

Maybank IB said the rise in Bank Negara’s net forex short positions recorded in April might continue to May as external reserves only fell US$900 million last month versus the RM18.5 billion (US$4.7 billion) foreign net sell of both equities and bonds.

While external reserves fell by US$900 million to US$108.5 billion last month, trade flows remained supportive of external reserves via the repatriation of export earnings, where the surplus increased to RM46.4 billion between January to April versus RM27.5 billion recorded in the same period last year.

“We expect a larger trade surplus of RM123.2 billion this year (2017: RM97.2 billion) to provide fundamental support to external reserves amid the volatile portfolio capital flows,” it said.

Maybank IB said the decrease in Bank Negara’s external reserves was due to foreign sell-offs in local equity and bond markets following increased risk aversion towards emerging markets, as well as domestic political developments and policy implications in the aftermath of the 14th General Election that resulted in a change in the government.