RHB Research Says BNM's Measures Will Lead To A More Stable Ringgit

KUALA LUMPUR, Dec 5 (Bernama) -- The measures being undertaken by Bank Negara Malaysia (BNM) or Central Bank of Malaysia to enhance the liquidity of the foreign exchange (FX) market, will likely to lead to a more stable ringgit, said RHB Research in a note. It said the onshore and offshore ringgit non-deliverable forward (NDF) markets appeared to be converging. "First signs emerged last Friday (Dec 2) evening as the ringgit closed at 4.45 against the US dollar in the domestic market, whereas it ended at 4.44 in the offshore market. "This suggests that offshore banks were squaring off their NDF hedge positions, as they slowly exit ringgit positions to avoid losses, following the speculative position taken in recent weeks. "However, it remains uncertain as to how the ringgit NDF market will pan out," it added. BNM's Financial Markets Committee had on last Friday announced measures to broaden the onshore FX market in a move to improve liquidity, effective Monday. The local note opened higher against the US dollar at onshore Monday following the measures, in strengthening to 4.4470/4500 against the greenback in the early trade from the 4.4500/4550 recorded last Friday (6 pm). RHB Research noted that overall, the announced measures are intended to promote a deeper, more transparent and well-functioning onshore foreign exchange market, whereby genuine investors and market participants can effectively manage market risks with greater flexibility to hedge on the onshore market. In the near term, it said the moves are expected to provide support to the ringgit, as and when export proceeds are being converted into the local currency. "However, demand for foreign currency to pay for imports and capital outflow could offset part of the gain, in our view. "Over the medium-term, we believe it is still more important to enhance confidence in the fundamentals of the Malaysian economy, to provide support to the ringgit," it said. Meanwhile, the requirement to retain only 25 per cent of export proceeds in foreign currencies will likely add to the cost of doing business, said the research firm. "However, this may be a small price for Malaysia to pay, towards developing and deepening its onshore FX market, in our opinion. "Furthermore, as Malaysia is a relatively small and open economy, we believe it makes sense for the country to have some exchange control measures to ensure a more stable ringgit," it added. -- BERNAMA