Bank Negara warns action against NDF traders to stop ringgit slide

KUALA LUMPUR - Malaysia’s central bank said “prompt supervisory intervention” will be taken against any individuals or banks which are engaged in ringgit trade in the non-deliverable forwards (NDF) market.

Bank Negara Malaysia (BNM) Governor Datuk Muhammad Ibrahim said it has been made clear to local banks that onshore opening ringgit prices cannot reference offshore prices or be out of sync with the underlying fundamentals of the economy.

“This week has seen many noises surrounding these measures. There is no new policy on capital flows. There is no proxy capital control either,” Muhammad said in a speech at an event last night. The speech was released to the media today.

Earlier yesterday, the central bank confirmed that it had been intervening in the onshore market to stem the slide in the ringgit, Asia’s worst performing currency since Donald Trump’s surprising win in the US presidential election on Nov. 8 sparked a global sell-off in emerging markets.

Emerging Asian currencies and bonds lost ground as investors feared higher US interest rates once Trump assumes the presidency would spark capital outflows from the region.

Malaysia sent out form letters this week from banks in Malaysia to their offshore counterparts and clients. The letters asked them to sign a commitment to cease trading the ringgit in the NDF markets and then send the letters back to Bank Negara.

BNM said the clamp down was to “ensure orderliness and stability of our markets”, but stressed that it did not amount to capital controls.

Yesterday, the ringgit had slid to a fresh 11-month low of 4.41 against the dollar by 0800 GMT.

Muhammad said in his speech yesterday that the central bank will implement several measures to boost onshore ringgit trade, particularly against the US dollar and Chinese yuan.

These would include a pilot programme that would allow onshore hedging of dollar and yuan transactions against the ringgit without the need to see underlying documents, and the introduction of onshore dollar and yuan futures against the ringgit.

The central bank governor said they are also finalising an operational framework for Foreign Exchange Administration compliance, that will set an industry standard for minimum due diligence and provide more clarity and efficiency in foreign exchange and hedging transactions.

“Taken together, these three measures are targeted at residents such as the Small and Medium Enterprises with a view to expand their access to hedge freely and directly with onshore banks,” Muhammad said. ― Reuters