Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 28 Jan 2022, 9:37 AM


BNM International Reserves - Rose 0.5% MoM in November on Net Bond Portfolio Inflows

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● Bank Negara Malaysia (BNM) international reserves remained on an uptrend, rising by USD0.6b or 0.5% MoM (Oct: 0.8%) to USD116.7b as of 30 November 2021

- Sufficient to finance 8.0 months of retained imports and is 1.3 times total short-term external debt.

● This was underpinned by an increase in foreign currency reserves, gold and SDRs

- Foreign currency reserves (+USD0.5b or 0.5% MoM to USD103.9b): expanded for the second straight months (Oct: +USD0.9b) to an 83-month high, due to rising foreign net debt inflows.

- Gold (+USD0.04b or 2.0% MoM to USD2.2b): fastest growth in five months.

- SDRs (+USD0.04b or 0.6% MoM to USD6.1b): largest holdings in three months.

In ringgit terms, the value of BNM reserves hit another record high of RM489.0 (+RM2.8b or 0.6% MoM)

- USDMYR monthly average (4.175; Oct: 4.162): ringgit erased all of its October's gains and depreciated against the USD due to rising demand for the safe-haven dollar, a 3.5% MoM drop in average Brent crude oil price and a sharperthan-expected Malaysia 3Q21 GDP contraction (-1.4%). To note, the USD index (DXY) climbed to an average of 95.3 in November (Oct: 93.9) due to strengthening Fed rate hike expectations amid US red-hot inflation and improving macroeconomic readings. To add, the local note was also battered by the emergence of the Omicron variant.

- Regional currencies: IDR (-0.5%) and SGD (-0.4%) tracked the same path amid rising DXY and growing global COVID-19 uncertainty due to the Omicron variant. Outperforming its peers, THB (1.0%) and PHP (0.8%) appreciated against the USD due to improving economic prospects amid the easing of COVID-19 restrictions.

● For the time being, BNM is expected to maintain status quo on policy rate (1.75%) until at least September 2022

- Despite the looming threat of the Omicron variant, the BNM is still expected to keep the overnight policy rate (OPR) unchanged at 1.75% until at least September 2022 as Malaysia's COVID-19 situation may likely remain under control amid Ministry of Health's strict precautionary measures, enhancement of the national standard operating procedures and administration of booster doses. However, should the new variant turn out to be vaccine-resistant, it may trigger another wave of movement restriction order and possibly influence BNM’s policy decision.

- USDMYR year-end forecast (4.18; 2020: 4.02): as of December 6, the ringgit was trading at around the 4.23 level against the USD, mainly due to the renewed global COVID-19 concerns amid the advent of the Omicron variant. From the 4.23 level, the local note may continue to weaken to around the 4.25 zone due to the rising Fed's tightening expectation and volatile crude oil prices. However, closing the year, the USDMYR pair is expected to trade in the range of 4.18 to 4.20 due to the worsening US economic outlook, debt-ceiling crisis and expectations of a stronger Malaysia’s economic data reading.

Source: Kenanga Research - 8 Dec 2021

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