Bank Negara Malaysia saw its international reserves decline for the third straight month, falling by USD0.9b or -0.8% month on month to USD105.2b as of 31 October 2022 which is sufficient to finance 5.5 months of imports of goods and services and is 1.1 times total short-term external debt.
The continued downtrend was mainly due to a persistent depletion of the foreign currency reserves − which dipped by USD0.9b or -0.9% MoM to USD94.6b): it also shrank to its lowest level in 63 months, partly due to foreign exchange intervention. To note, the central bank’s net foreign currency reserves fell to an 18- year low of USD60.9b in September (Aug: USD71.6b).
As for its gold assets, it was up by USD0.04b or 1.7% MoM to USD2.1b): which rebounded marginally to a two-month high. Meanwhile, both other reserve assets and special drawing rights decreased marginally by USD0.02b.
In ringgit terms, the value of BNM reserves reverted to a decline, falling by RM4.1b or -0.8% to RM487.8b − USDMYR monthly average (4.695; Sep: 4.546): the ringgit depreciated to an all-time low of near the 4.70 thresholds against the USD on average in October. The local note was mainly dragged by increasing domestic political uncertainty following the dissolution of the parliament on October 10, the narrowing of MY-US yield premium (average Oct: 45 basis points (bps); Sep: 67 bps), the strengthening of USD index (DXY) amid the Fed’s persistent hawkish messages and the weakening of the yuan amid increasing divergence between the People’s Bank of China and Fed monetary policies.
Compared with regional currencies: all ASEAN-5 currencies extended their weakness against the greenback as the DXY climbed by 1.1% on average due to US’ hotter-than-expected September core inflation and better-than-expected 3Q22 GDP readings. The depreciation was led by IDR (-2.9%), followed by PHP (-2.4%), THB (-2.2%), and SGD (-0.6%).
According to Kenanga, BNM may pivot from tightening as early as January 2023 due to worsening global economic outlook − At this juncture, the research house priced in a 50% probability for another overnight policy rate hike by the BNM at its January 18- 19 meeting, mainly due to the bleak global economic outlook amid China’s persistent zero-COVID-19 policy and rising recessionary pressure in Europe, UK and the US.
