- The international reserves of Bank Negara Malaysia (BNM) amounted to RM432.8bil (which is equivalent to USD136.1bil) as at 28 June 2013.

- Due to repatriation of funds, FOREX reserves at BNM deteriorated further in the 2H of June. In USD terms, the reserves at BNM fell by 3.3% (or –USD4.7bil) from the middle of June. Meanwhile, in Ringgit terms, reserves declined by just 0.5% on a semi-monthly basis mainly due to FOREX translation gains.

- As a recap, during the 1H of June, BNM’s international reserves fell by 0.4% (or –USD0.6bil) since May 31, amounting to USD140.8bil as of June 14. In Ringgit denomination, reserves had amounted to RM435.0bil (or -0.4% since end of May).

- The reserves level takes into account quarterly adjustment for foreign exchange revaluation changes during the period. Owing to a weaker Ringgit during the 2H of June, we note that the reserves in Ringgit value stumbled by RM2.2bil.

- In tandem with other regional currencies, the Ringgit had depreciated towards the latter part of June, leading to an outflow of capital from regional financial markets. On average, the Ringgit slipped by 2.1% during the 2H of June.

- Despite the fall in overall reserves at BNM, the reserves position can still finance up to 9.5 months of retained imports and is 4.3 times the short-term external debt.

- However, financial institutions remain well-capitalised as liquidity surplus stands at approximately RM309.2bil as of May 2013.

- Mainly, global markets have overreacted to the Fed’s suggestion in May regarding the decision to start scaling back on its bond purchases.

- Despite resilient domestic fundamentals, Malaysia remains vulnerable to threats of the unwinding of the QE in the US. We do expect outflow of funds to persist until the US Fed retracts the QE completed by the middle of 2014.

- In response to the scaling back of the ultra-loose monetary policy by the Fed, we expect the Ringgit to fluctuate in a methodical manner as BNM is committed to maintain an orderly market condition and to weather volatilities in both the local currency and the stock market.

Source: AmeSecurities