Bank Negara Malaysia international reserves continued to accumulate, increasing by USD1.3b or 1.2% MoM to a 10-month high of USD114.8b as of 31 January 2024. Sufficient to finance 5.4 months of imports of goods and services (previously retained imports: 6.9 months) and is 1.0 time total short-term external debt
The rise is mainly due to the ongoing increase in foreign currency reserves. Foreign currency reserves (+USD1.3b or 1.3% MoM to USD102.2b): up for the third straight month, despite a sell-off in Malaysia’s debt securities and a stronger USD.
This surge could be attributable to a rise in foreign receipts. Notably, the BNM’s net FX reserves reached an eight-month high of USD62.7b in December (Nov: USD58.2b) due to a substantial reduction in debt service payments, particularly in principal, related to loans and securities (-RM14.6b; Nov: -RM18.0b).
Meanwhile, special drawing rights, other reserve assets, gold and IMF reserve position remained relatively unchanged. In ringgit terms, the value of BNM reserves rebounded by RM6.4b or 1.2% MoM to RM527.2b. USDMYR monthly average (4.68; Dec: 4.66): the ringgit has reversed most of its gains from December as the market unwound its dovish Fed positions, prompted by consistently robust US macroeconomic readings and resistance from Fed officials to commit to an early easing cycle. The ringgit has also been dragged down by the depreciation of the yuan, reflecting the ongoing weakness in the Chinese economy. Nevertheless, the MGS-UST yield differential has improved, partly due to rising demand for safe-haven US Treasuries amid escalating tensions in the Middle East.
Regional currencies: due to the overarching USD strength, all ASEAN-5 currencies depreciated against the safe haven currency, led by IDR (-0.8%), followed by PHP (-0.8%), THB (-0.5%), MYR (-0.5%), and SGD (-0.3%). The DXY averaged around 103.0 in January (Dec: 102.7), marking a 0.3% gain. This uptick is partly attributed to seasonal factors, influenced by the reversion of December tax flows by US corporations.
Kenanga believes policy rate to remain unchanged for the foreseeable future due to relative price stability. While headline inflation may experience a slight uptick to average around 2.7% in 2024 due to domestic policies and geopolitical factors, core prices are anticipated to converge to their long-term average of 1.8%. This, coupled with a robust GDP growth outlook, is likely to keep the BNM on autopilot mode throughout 2024.
As for USDMYR year-end forecast is (4.42; 2023: 4.59): despite US robust economic facade, the house identifies a few vulnerabilities, including ongoing concerns over the regional bank crisis and risks associated with the debt-driven consumer
spending. Kenanga’s expectation remains that June will mark the Fed’s long-awaited pivot towards easing. A series
of back-to-back rate cuts by the Fed, combined with growing investor confidence in Malaysia resulting from the
government expenditure-based fiscal consolidation, are seen to bolster the ringgit in 2H24.
We continue to foresee an appreciation of the ringgit from its current level, the extent of this gain is expected to be tempered by the absence of domestic catalysts, China’s weak economic momentum, and prevailing geopolitical uncertainty. Hence, the house said it has revised the end-2024 USDMYR forecast to 4.42 from 4.25 previously.
