BNM – new measures to support ringgit
> After re-enforcing rules against offshore trading, central bank now focuses on onshore market
PETALING JAYA: Bank Negara Malaysia (BNM), which deemed a plan to reenforce its rules against participation in the offshore Non-Deliverable Forwards (NDF) market “quite effective”, has announced several measures for the onshore market effective today, in a two-prong approach to prop up the ringgit which has fallen almost 6% since the US presidential election.
The ringgit closed marginally higher against the dollar last Friday at 4.456. NDFs are contracts for the difference between an exchange rate agreed months before and the actual spot rate at maturity, allowing investors and borrowers to take positions in currencies that are subject to official controls.
Assistant governor Adnan Zaylani said in a briefing that seven global banks known for positions in the NDF market have attested to no longer participating in it and that the central bank is in discussions with other banks on the attestation as well as positions in the NDF market. He added that BNM has even helped facilitate the liquidation of their positions related to the NDF market.
BMM has blamed the speculationdriven NDF market for the volatility of the ringgit, which it has consistently said is backed by strong fundamentals.
The central bank announced Friday, that the measures thought up by the central bank’s Financial Markets Committee (FMC), will not only require exporters to reduce their foreign currency holdings by 75%, but also ensure payments to suppliers are in ringgit, and that foreign currency investments onshore are kept in check.
The FMC has representatives from BNM, financial institutions, corporations, financial service providers and other institutions which have prominent role or participation in the financial markets and chaired by Adnan.
With an average of about RM90 billion of export proceeds currently retained in foreign currency, it is envisaged that a best case scenario will see a RM67 billion demand for the ringgit in the near to medium term.
This number however could be significantly lower with BNM allowing for the conversion of ringgit up to six months of import and loan obligations.
As an incentive, exporters will be given a deposit rate of 3.25% per annum on converted export proceeds for a year. They also have the flexibility to cancel forward contracts.
The FMC announced that individuals and corporates looking to invest in foreign currency products in the country, will follow the limit set for investments overseas, in a bid to streamline the rules.
Individuals with borrowings will now only be able to invest up to RM1 million per calendar year in foreign currency products, while corporates with borrowings can only go up to RM50 million.
Previously the restriction was only for those investing overseas. Further investments will need BNM’s approval.
It also said that it is enhancing the secondary bond market’s liquidity via commitments from market makers.
“These measures are intended to promote a deeper, more transparent and well-functioning onshore foreign exchange market where genuine investors and market participants can effectively manage their market risks with greater flexibility to hedge on the onshore market. A deep and liquid onshore foreign exchange market will enable investors to better manage against volatile currency movements,” said FMC.