BNM: Ringgit drop caused by non-resident outflows

PETALING JAYA: The ringgit depreciated 3.3% in February, in line with all regional currencies as domestic financial markets experienced non-resident outflows amid higher global risk aversion following the worsening of the Covid-19 pandemic.

In a statement, Bank Negara Malaysia (BNM) said despite the outflows, yields in the domestic bond market declined.

“In particular, the 10-year Malaysian government securities (MGS) yield declined by 30.5 basis points. While domestic institutional investors provided some support, the large decline mainly reflected expectations for monetary easing amid concerns over the growth outlook,” said the central bank in a report.

On the other hand, Malaysia’s headline inflation moderated to 1.3% in February, from 1.6% in the previous month, reflecting the decline in transport inflation following lower prices of retail fuel products and the 18% reduction in toll rates on selected highways.

Core inflation for the month fell to 1.3%, from 1.7% in January, partly reflecting lower rental inflation.

Meanwhile, exports contracted 1.5% in January from a growth of 2.7% in December 2019, due to slower growth in manufactured exports and a sharper decline in commodities exports.

Going forward, the central bank stated that export growth is expected to remain weak, reflecting the adverse impact of Covid-19 on global demand and supply chains.

In terms of financing, net financing grew to 5% in February compared to 4.7% in January, on faster expansion in outstanding loans of 3.9%.

Outstanding corporate bond growth also increased slightly to 8.2%, from 8% in January, while outstanding business loan growth increased to 3.6%, due mainly to lower repayments.

“Disbursements were broadly sustained during the month. However, outstanding household loan growth declined to 3.7% in February on account of lower disbursements for credit cards, and securities and car loans,” said BNM.

On the whole, banks’ asset quality remained sound with overall net impaired loans ratio remaining stable at 1%.

The central bank highlighted that the banks continued to maintain sufficient buffers against potential credit losses with total provisions (including regulatory reserves) at 125.1% of total impaired loans.