The move follows the ringgit’s plunge to 4.10 to the dollar last Friday and the foreign exchange reserves dropping to below the US$100 billion threshold in July.
According to sources, the central bank issued a circular to foreign exchange (forex) dealers from local and foreign financial institutions on Tuesday, saying that onshore banks will be strictly not allowed to take onshore fixing orders from offshore banks.
Additionally, pre-approval must be obtained from BNM directly for fixing orders from onshore-offshore corporate clients on a case-by-case basics.
It is not known if the order is effective immediately.
A fix is a benchmark rate based on trades taking place in a given time window. Usually, companies or investors who want to buy or sell currency compare prices from several dealers, who quote two rates depending on whether they are buying or selling. Dealers make their money from the bid or offer spread between these two rates. At the fix, banks guarantee their clients the market mid-rate.
When contacted yesterday, a BNM spokesperson denied that the central bank had issued such a circular.
The move did not appear to deter the ringgit’s continued decline though – a pattern that was seen some years back during the 1997-8 Asian financial crisis – as the local currency fell by 0.58% to 4.1058 to the dollar yesterday.
Reuters, however, reported yesterday that thin liquidity kept investors from taking fresh positions.
It quoted a senior Malaysian bank trader as saying that currency trading volume shrank to about 20% of past levels.
In a 12-month period, the ringgit has weakened about 30.18% against the US dollar, making it the worst-performing currency in Asia.
A local forex dealer said the ringgit was sold off “aggressively” yesterday as a result of the BNM circular.
While no other details were given, the dealer said the circular appears to restrict onshore fixing usage only to corporates while portfolio investors are directed to come to onshore market around fixing time for two-way price.
It is believed that BNM representatives met with the forex dealers late yesterday, following the issuance of the circular.
Late last month, BNM reportedly issued a directive to forex dealers discouraging them from entering into transactions that result in selling the ringgit.
The directive came about after speculators were believed to be unfairly forcing down the value of the ringgit by entering into a “put” option at 4.00 to the US dollar over a period of between three and six months.
The ringgit’s dismal performance came as July inflation data showed that inflation had spiked to 3.3%, making it the highest recorded rate in 2015. (Watch realtime: Ringgit exchange rate )
No comments:
Post a Comment