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Wednesday, November 16, 2016

Desperate measures: Bank Negara instructs foreign banks to refrain from offshore ringgit trading

Malaysia’s central bank is asking foreign banks to make a written commitment to refrain from trading the ringgit in the offshore non-deliverable forwards market in its latest move to protect a weakening currency, banking sources said.

The central bank has sent a form letter to foreign banks, which asks for an “unconditional representation and commitment” to stop trading in any offshore Malaysian ringgit non-deliverable forwards or offshore derivatives.

Two separate sources at banks confirmed receipt of the letter.

The letter also asks financial institutions to provide a detailed plan to the central bank of its needs to make ringgit transactions onshore and to seek help from Malaysian financial institutions for any foreign exchange transaction needs.

The letter is a marked change from Saturday’s central bank notification, in which foreign funds and asset managers were asked to contact Malaysian licensed banks to execute any foreign exchange transactions. It suggests authorities are tightening controls on the ringgit.

“It’s not surprising, given how much MYR (ringgit) has lost. It sounds like a desperate intervention,” said Nordea Markets’ chief analyst Amy Yuan Zhuang in Singapore.

Malaysia’s ringgit touched a 10-month low to US$4.3470 to the dollar at around 0630 GMT.

Bank Negara’s comparatively small foreign reserves compared to other Asian countries, has left the central bank with fewer options, she said. “It needs such measures more than other Asian central banks.”

At 40 per cent of the total outstanding bond market, Malaysia’s foreign holdings are one of the largest in Asia. Investors typically use the liquid NDF markets in Singapore and Hong Kong to hedge their exposure because of the many restrictions in the domestic market. — Reuters

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