Foreign reserves position may improve further

KUALA LUMPUR: Malaysia’s foreign exchange (forex) reserves position, which jumped by US$4 billion year-on-year (y-o-y) to US$107.6 billion in the fourth quarter (4Q) of 2020, could improve further driven by improving global sentiment, thanks to the recent Covid19 vaccine breakthrough, Public Investment Bank Bhd (PublicInvest Research) said.

It said the vaccine could be a precursor for global trade to normalise and risk appetite in Asean capital markets to return.

“The downside risks from forex reserves may come from the uncertainty of USChina second trade talks and potentially prolonged periods of negotiation that could hurt investor sentiment, especially when both countries are important trading partners for Asean.

“An extended period of uncertainty may hurt the equity market, ringgit and subsequently our forex reserves for that matter,” it said in a note yesterday.

Malaysia’s forex reserves position is resilient and currently above the international adequacy standards, sufficiently ample to support the country’s resilience against shocks and contagion effects, it said.

Its steady position would also underpin macroeconomic and financial system stability especially during volatile capital and currency market conditions, Public Investment Bank said.

“Further to this, our forex reserves position, amid the Covid-19 pandemic, is above our position during the 2008/9 global credit crises (circa RM300 billion+) and 1997/98 Asian financial crisis (circa RM50 billion+), which is more than sufficient to offset against unexpected volatility.

“Our limited external debt position which amounts to less than five per cent of our total fiscal debt suggests our enduring forex reserves position,” it said.

Bank Negara Malaysia’s 4Q20 forex reserves of US$107.6 billion at the end of 4Q20 was its best since the second quarter of 2018, a rise that was consistent with regional peers, said PublicInvest Bank.

The rise in 4Q20’s forex reserves was supported by encouraging trade surplus which remained strong to-date (year-to-date 2020: RM163.8 billion; up 23.1 per cent y-o-y).

This was offset, however, by sustained foreign selling in the equity market though the selling pressure has eased against a year ago amid the peak of US-China trade tensions then.