BNM move un­likely to stem ring­git’s fall

> Sharp re­ver­sal of cap­i­tal flows in an­tic­i­pa­tion of US pol­icy changes and Fed in­ter­est rate in­crease

The Sun (Malaysia) - - MEDIA & MARKETING - BY LEE WENG KHUEN

PE­TAL­ING JAYA: Bank Ne­gara Malaysia’s (BNM) move to clamp down on ring­git non-de­liv­er­able for­ward (NDF) trades, which is aimed at curb­ing spec­u­la­tive ac­tiv­ity on the off­shore mar­ket, is un­likely to stem the fall in the ring­git, which has weak­ened 1.73% against the US dol­lar over the past week.

“It is not go­ing to stop the (down­ward) trend be­cause what is hap­pen­ing re­ally is that af­ter Don­ald Trump was elected (as the next US pres­i­dent), there has been a sharp re­ver­sal of cap­i­tal flows in an­tic­i­pa­tion of pol­icy changes.

“All th­ese will in­duce change in global forex trad­ing, and that is some­thing the cen­tral bank can­not con­trol,” an econ­o­mist with a lo­cal bank told Sun­Biz.

BNM gover­nor Datuk Muham­mad Ibrahim, who took of­fice on May 1, is seen to be more ag­gres­sive in deal­ing with the mi­cro is­sue than his pre­de­ces­sor, Tan Sri Dr Zeti Akhtar Aziz.

“Zeti was a macro pol­icy gover­nor. As long as the macro fun­da­men­tals are nice, she will leave some lee­way for the mar­ket. As for the new gover­nor, he has the ex­pe­ri­ence in the trea­sury and forex mar­kets and he is mi­cro man­ag­ing the sit­u­a­tion,” the econ­o­mist noted.

How­ever, with mi­cro mea­sures be­ing put in place, he said, it could be some­what neg­a­tive for the mar­ket, es­pe­cially the for­eign­ers, who al­ways want a free mar­ket.

“But in th­ese cir­cum­stances, as Malaysia is small and off­shore ring­git trad­ing is very thin, spec­u­la­tion can ac­tu­ally get out of hand. That’s why the in­ten­tion is to curb that spec­u­la­tive ele­ment and make sure that the ring­git is still be­ing fa­cil­i­tated, but more for un­der­ly­ing trade and in­vest­ment,” he ex­plained.

The econ­o­mist said spec­u­la­tive ac­tiv­ity could be­come “out of con­trol” if the ring­git con­tin­ues on a down­ward spi­ral. “If the ring­git breaches the pre­vi­ous low of 4.44, then it will lead to another round of spec­u­la­tion. His (the gover­nor’s) in­ten­tion is to make sure that the ring­git is not out of line of what’s hap­pen­ing,” he added.

The ring­git, which weak­ened 0.54% to 4.4183 against the US dol­lar as at 5pm last Fri­day, has been de­clin­ing in the past eight trad­ing days, its long­est down­ward streak for more than a year. The Malaysian cur­rency has lost 2.84% year to date.

It was re­ported last Fri­day that BNM was in­ter­ven­ing in the mar­ket to pre­vent fur­ther pun­ish­ment of the ring­git.

BNM, which does not recog­nise off­shore trad­ing of the ring­git due to the spec­u­la­tive po­si­tion­ing, has asked on­shore banks to stop fa­cil­i­tat­ing any NDF trades in the ring­git as well as avoid en­gag­ing with any non-res­i­dent banks that are sus­pected of off­shore ring­git trad­ing.

On Satur­day, Muham­mad said sev­eral for­eign ex­change (forex) traders in the do­mes­tic mar­ket were ob­served to be look­ing to­wards the NDF mar­ket for cues in de­ter­min­ing the open­ing mar­ket price for the ring­git, which led to the in­ad­ver­tent im­port of the NDF volatil­ity into the on­shore mar­ket.

In­vestors gen­er­ally use the NDF mar­ket to ex­change the ring­git due to the re­stric­tions in the do­mes­tic mar­ket.

So­cio-Eco­nomic Re­search Cen­tre ex­ec­u­tive direc­tor Lee Heng Guie, mean­while, is of the view that the mar­ket will con­tinue to see volatil­ity ahead due to the BNM Mon­e­tary Pol­icy Com­mit­tee meet­ing this week and the US Fed­eral Re­serve (Fed) meet­ing next month.

“When sen­ti­ment is weak, you are bound to see volatil­ity … most im­por­tant is that the ring­git re­mains trade­able and the liquidity is there. That what­ever trade or in­vest­ment will be fa­cil­i­tated,” he noted.

Given the height­ened un­cer­tainty in the forex mar­ket, FXTM vice-pres­i­dent of mar­ket re­search Jameel Ah­mad said, it is dif­fi­cult to pro­vide a pro­jec­tion on the ring­git move­ment over the next cou­ple of months.

“What in­vestors need to fo­cus on at the mo­ment is the present and the con­stant pres­sure that the emerg­ing mar­ket cur­ren­cies (and even global) are fac­ing fol­low­ing the resur­gence in US dol­lar de­mand,” he told Sun­Biz.

Jameel said in­vestors are buy­ing the US dol­lar fol­low­ing the re­peated sig­nals by the Fed of its in­ten­tions to raise in­ter­est rates in De­cem­ber.

“The fi­nan­cial mar­kets are be­ing com­pletely driven by the US dol­lar at present, with woes for the emerg­ing mar­ket cur­ren­cies re­turn­ing and even ma­jor global cur­ren­cies hit­ting mile­stone lows against the US dol­lar.”

A for­eign cur­rency money changer in Kuala Lumpur. In­vestors are buy­ing US dol­lars due to the Fed’s re­peated sig­nals of an im­mi­nent in­ter­est rate in­crease, says forex bro­ker FXTM.

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