RM8.85bil in foreign currency proceeds repatriated to Malaysia

KUALA LUMPUR: Companies have repatriated US$2bil (RM8.85bil) in foreign currency export proceeds in three months since December last year, Bank Negara said.

Prior to this, a substantial portion of the export proceeds were kept overseas.

This renewed flow of export proceeds into the domestic market, Bank Negara said, has contributed to the improved performance of the ringgit this year.

Bank Negara in December had imposed a requirement for exporters to convert at least 75% of their export proceeds to the ringgit, as it seeks to shore up the currency.

At the same time, the central bank had sought to curb the speculative activities in the offshore non-deliverable forward (NDF) foreign exchange (forex) market.

“The adverse influence from the offshore market has also subsided in recent months. There is also an improved balance in the forex flows between exports and imports, which is more reflective of Malaysia’s trade surplus,” governor Datuk Muhammad Ibrahim told reporters after the release of the Bank Negara 2016 Annual Report and Financial Stability and Payment Systems Report here yesterday.

“The ringgit, along with other regional currencies, has seen a reduction in volatility amidst a more stable global financial market this year. The domestic forex market has also become more stable following the introduction of new measures in December,” he added.

The ringgit has recovered from an 18-year low since the turn of the year. Since Jan 1, the currency has strengthened from RM4.485 against the dollar to RM4.4295 as of March 23. The ringgit had depreciated by 4.3% last year.

In November last year, Bank Negara took immediate action to halt speculative activity on the ringgit, particularly in the offshore NDF market.

On Nov 11, offshore rates for the ringgit went as high as RM4.535 against the dollar, as a lack of liquidity and speculation impacted the currency. The non-transparent pricing mechanism in the NDF market spilled over to the onshore forex market, whereby the domestic price discovery process was disrupted, the central bank said in a statement.

To counteract this, Bank Negara formed a financial markets committee last year to deepen and broaden the domestic forex market. The measures included promoting forex hedging in onshore markets, as well as the conversion of exporters’ profits into the ringgit.

Muhammad pointed out that the success of the measures can be measured in concrete numbers. For example, the average volatility for the ringgit against the US dollar declined from 219 points in November last year to 53 points in February.

Similarly, the average daily gap between onshore and offshore rates narrowed from 504 points in November to 275 points as of last month. Bank Negara was also largely successful in ensuring that enough liquidity is present for orderly trading. The average daily turnover for the ringgit currency pair rose from US$4.2bil in November to US$5.2bil in February. “As we go further, we may introduce new measures if we think it can help businesses. One focus is to make it easier for small businesses to hedge their exposure,” he said.