Bank Negara Malaysia (BNM) international reserves edged up by USD0.4b or 0.4% MoM to a five-month high of USD103.6b as at 31st December 2019

• - Sufficient to finance 7.5 months of retained imports and is 1.1 times total short-term external debt.

Higher foreign reserves due to an increase in foreign currency reserves and other reserve assets

• - Foreign currency reserves (+USD0.4b or 0.4% MoM to USD97.2b): fastest expansion in five months, reflecting higher repatriation of export earnings and revaluation gains.
• - Other reserve assets (+USD0.1b or 2.4% MoM to USD2.3b): the highest recorded in eight months.
• - Other components remained broadly unchanged.

In Ringgit terms, the value of BNM reserves decreased by RM7.9b or -1.8% MoM to RM424.1b

• - USDMYR: traded at an average of RM4.146 in December (Nov: RM4.155), its strongest level in five months, appreciating by 0.21% MoM (Nov: 0.8%) on optimism of an imminent US-Sino interim trade pact.
• - Other regional currencies: majority of the currencies gained in December, led by the Singapore Dollar (0.37%), followed by Indonesian Rupiah (0.37%) and Thai Baht (0.15%). The Philippine Peso (1.2%) bucked the trend, depreciating by a marginal 0.1%.

BNM to lean towards further easing as soon as early 1Q20 to support growth

• - Cautious growth outlook retained, in spite of the phase-1 US-China trade deal, as the impact of existing tariffs would still weigh on global trade and growth in the immediate term. Coupled with continued weakness in domestic economic indicators, we reckon that the BNM may decide to slash the OPR by 25 basis points to 2.75% as soon as early 1Q20.
• - USDMYR year-end forecast (4.10; 2019: 4.09): expectation of an improved capital flows into the emerging markets amid a low interest rate environment to lift the Ringgit in the 1H20, possibly testing the 4.00 support level. Nonetheless, it will remain volatile throughout the year, but more prominently in 1H20 before settling at 4.10 by end-2020, driven by developments on global geopolitical unrests and narrower current account surplus.

Source: Kenanga Research - 9 Jan 2020