BNM Acts To Stem Volatility, Says Onshore Rates Is The Right Reference

By M.Saraswathi KUALA LUMPUR, Nov 17 (Bernama) -- Bank Negara Malaysia (BNM) is consistently taking measures to stem volatility in the foreign exchange market and the central bank reiterated Wednesday that the onshore rate of the currency is the right reference price. Assistant Governor Adnan Zaylani said the bank has informed locally licenced banks not to facilitate any ringgit non-deliverable forward (NDF) or offshore rate as it was deemed unofficial. "The NDF market has driven up the onshore rates 5-6 sen higher. It is a situation we cannot tolerate and we are taking serious measures to address it," he said. Adnan, however, acknowledged that it was an uphill task to manage the market as Malaysia was an open market and the central bank had a policy to maintain the ringgit as a non-internationalised currency and avoid potential speculation. He said BNM (Malaysia's Central Bank) can only attempt to reduce the influence of the NDF market on onshore trading but it cannot completely "kill it" as it operated outside its jurisdiction. One way the central bank can tackle the situation was through expanding the flexibility of the onshore market by making it more attractive. "Make it the market of choice for residents and non-residents and even attract some offshore NDF market players to come onshore," he told a press briefing here Wednesday. Adnan pointed out that there could be fund managers with significant holdings in the Malaysian market but who preferred to hedge offshore. "So, that is the strategy going forward, which is to accommodate the demand of non-resident investors, which will eventually increase the depth and breadth of the foreign exchange and bond markets," he said. Asked if there were knee-jerk plans BNM was embarking on, given the current volatility, Adnan said there were planned initiatives scheduled for 2017, and given the current scenario, the central bank may accelerate it. He also said that the bank can take punitive action against foreign or local banks registered in Malaysia if they facilitate NDF transactions. "We can take (punitive action) as they will be breaching the Foreign Exchange Administration (FEA). "We can even take criminal or administrative action (against them)," he disclosed. -- BERNAMA