Foreign reserves, ringgit remain under pressure as uncertainties in the US linger
KUCHING: In the months ahead, analysts believe there are still some uncertainties on the movement of Malaysia’s portfolio fund flows as the country’s international reserves and ringgit remain pressured by the US Federal Reserve’s decision to hike the Fed Funds Rate (FFR).
“As US economy continues to show decent strength, we believe the US Fed may likely raise its policy rate, possibly in the upcoming March 14 to 15 Federal Open Market Committee (FOMC) meeting,” said Affin Hwang Investment Bank Bhd’s research arm (AffinHwang Capital).
Nevertheless, the research team added, despite uncertainty on the movement of portfolio fund flows, it expected Malaysia’s reserves to hover around US$95 billion to US$98 billion by end2017.
“Apart from healthy current account surplus and inflows of foreign direct investment, the announcement of recent Bank Negara Malaysia (BNM) forex measures, with the requirement of converting 75 per cent of export proceeds into ringgit, will also support reserves,” it said.
Meanwhile, Affin Hang pointed out that Malaysia’s current level of reserves is sufficient to cover 8.6 months of retained imports while reserve coverage of shortterm external debt remained at 1.3 times.
“The slight improvement in reserves in the month of January may be due to some stabilisation of portfolio outflows as well as healthy current account surplus and supported by some trade and investment inflows.
“During the month, the net foreign buying in equity market amounted to RM500 million, the first net inflow in five months. Similarly, we believe foreign holding of bonds (such as Malaysian Government Securities and Government Investment Issues, which declined by RM5.36 billion in December ( down RM19.9 billion in November), is likely to improve slightly in January,” it said.
Of note, the international reserves of BNM rose by US$0.7 billion to US$95 billion in the second half of the month ending January 31, 2017, compared with US$ 94.3 billion as at January 13, 2017, the first increase since mid-November.
The research team noted, in ringgit terms, reserves also rose slightly by RM3.1 billion from RM422.9 as at mid-January to RM426 billion as at January 31, 2017.