-  The international reserves of Bank Negara Malaysia (BNM) amounted to RM438.3bil (which is equivalent to USD137.8bil) as at 31 July 2013. The reserves level takes into account quarterly adjustment for foreign exchange revaluation changes during the period.

-  FOREX reserves at BNM had improved in July despite the slight decline during the 2H of the month. In USD terms, the overall reserves grew on a sequential basis ofUSD1.7bil (or +1.2% MoM) in July. Nonetheless,reserves had fallen by a cumulative USD1.9bil (or -1.4%) as of YTD July 2013.

-  With that, the overall reserves at BNM is sufficient to finance up to 9.7 months of retained imports and is 4.3 times of short-term external debt.

-  However, in Ringgit terms, reserves grew by RM11.2bil (or +2.6%) YTD mainly due to FOREX translation gains. During the month of July alone, reserves had advanced by RM5.5bil (or +1.3% MoM) on the back of the relatively weaker Ringgit.

-  In July, Ringgit was notablyweaker against the USD. The local currency fell by 2.6% MoM (or a cumulative 6.1%YTD) to close at RM3.244 at the end of July. Note that the Ringgit closed at RM3.2545 at the end of last week on weaker buying sentiments.

-  Aside from anticipation of the US tapering off its bond purchases soon, the recent caveat by Fitch Ratings in terms of Malaysia’s fiscal credibility could continue to pose weaknesses for the Ringgit in the medium term.

-  In response to the recent downgrade of the country's sovereign credit outlook by Fitch Ratings recently, Prime Minister Datuk Seri Najib Razak said that the government is equally concernedabout fiscal reforms and will unveil a number of policies in the forthcoming national budget to strengthen its fiscal and macro position.

-  Meanwhile, the well-capitalised financial institutions have experienced a squeeze on their excess liquidity duringthe month of June. As of June 2013, we note that the surplus level had amounted to RM293.9bil which was a monthly decline of RM15.3bil (or -5.0% MoM).

-  Given this challenging environment, BNM has put forth several proposals to strengthen economic resilience and to accelerate the economic transformation agenda while ensuring sustainable growth. In tandem with that, we believe that monetary policy is likely to stay accommodative while banking surveillance is enhanced.

Source: AmeSecurities