BNM wants for­eign banks’ writ­ten com­mit­ment to stop off­shore ring­git trad­ing

The Sun (Malaysia) - - SPEAK UP -

HONG KONG/SIN­GA­PORE: For­eign banks have been asked to make a writ­ten com­mit­ment to Malaysia’s cen­tral bank to stop trad­ing the ring­git in the off­shore non-de­liv­er­able for­wards (NDF) mar­ket in the bank’s lat­est move to pro­tect a weak­en­ing cur­rency, bank­ing sources said.

For­eign banks have been sent a form let­ter to sign, which asks them for an “un­con­di­tional rep­re­sen­ta­tion and com­mit­ment” to stop trad­ing in any off­shore ring­git non-de­liv­er­able for­wards or off­shore deriva­tives.

The let­ters were sent by banks in Malaysia who hold bonds and other Malaysian as­sets as cus­to­di­ans for for­eign banks. The form let­ters are ad­dressed to Bank Ne­gara Malaysia (BNM).

Two sep­a­rate sources at banks con­firmed get­ting the form let­ter, which Reuters re­viewed.

The let­ters also asks fi­nan­cial in­sti­tu­tions to pro­vide a de­tailed plan to the cen­tral bank if they need to make ring­git trans­ac­tions on­shore and to seek help from Malaysian fi­nan­cial in­sti­tu­tions for any for­eign ex­change trans­ac­tion needs.

BNM in a state­ment to Reuters yes­ter­day con­firmed it has made the re­quest through banks in Malaysia.

“Bank Ne­gara Malaysia has re­quested through on­shore banks that any non-res­i­dent banks, which trans­act in the forex mar­ket, to at­test that they are not and will not en­gage in NDF re­lated trans­ac­tions,” the cen­tral bank state­ment said.

For­eign hold­ings ac­count for 40% of the to­tal out­stand­ing bond mar­ket in Malaysia, one of the largest for­eign own­er­ships in Asia.

For­eign­ers have been flee­ing the Malaysian mar­ket in a global bond rout fol­low­ing Don­ald Trump’s elec­tion as US pres­i­dent last week, which sent the dol­lar soar­ing and has hit emerg­ing mar­ket cur­ren­cies par­tic­u­larly hard. Trump is ex­pected to adopt poli­cies that are likely to in­crease in­ter­est rates faster than pre­vi­ously thought.

In­vestors typ­i­cally use the liq­uid NDF mar­kets in Sin­ga­pore and Hong Kong to ex­change ring­git for dol­lars be­cause of the many re­stric­tions in the do­mes­tic mar­ket.

The let­ters fol­low a Bank Ne­gara state­ment on Satur­day say­ing the cen­tral bank would “reen­force” ex­ist­ing rules against off­shore trad­ing of the ring­git. The bank said the ring­git is a non­in­ter­na­tion­alised cur­rency and thus trad­ing it in the over­seas NDF mar­kets “is not recog­nised”.

The cen­tral bank’s move is not sur­pris­ing, given how much the ring­git has lost re­cently, said Nordea Mar­kets’ chief an­a­lyst Amy Yuan Zhuang in Sin­ga­pore.

Bank Ne­gara’s com­par­a­tively small for­eign ex­change re­serves has left Bank Ne­gara with fewer op­tions, she said. – Reuters

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.