● Bank Negara Malaysia (BNM) international reserves edged up by USD0.6b or 0.6% MoM to a 17-month high of USD104.2b as at 31st January 2020
- Sufficient to finance 7.5 months of retained imports and is 1.1 times the total short-term external debt.

● Higher foreign reserves due to an increase in foreign currency reserves and other reserve assets
- Foreign currency reserves (+USD0.5b or 0.5% MoM to USD97.7b): fastest expansion in ten months.
- Other reserve assets (+USD0.1b or 4.6% MoM to USD2.4b): the highest level recorded in 18 months.
- Other components, namely IMF reserve position, SDRs, and gold remained unchanged.

● In Ringgit terms, the value of BNM reserves increased by RM2.2b or 0.5% MoM to RM426.3b
- USDMYR: traded at an average of RM4.0785 in January (Dec: RM4.1464), its strongest level in ten months, appreciating by 1.7% MoM (Dec: 0.2%) partly contributed by the positive development in the US-China phaseone trade deal which have boost capital flows into the emerging countries including Malaysia.
- Other regional currencies: Indonesia recorded the highest gain at 2.1% MoM, while Singapore’s currency edged up 0.4% MoM. Bucking the trend, Thailand Baht and Philippines Peso depreciating by 0.9% and 0.1% respectively.

● BNM has room to lean towards further easing to prop up growth
- We maintain our cautious growth outlook in spite of the positive development in the phase-one trade deal. While the US has announced tariff cuts on USD120b Chinese goods and China will cut tariff on USD75b American products, the impact of the tariff on the remaining product would still weigh on global trade and growth. Meanwhile, domestic economic indicators point to continued weakness and may further weighed by the impact of the contagious coronavirus. Nonetheless, we reckon that the BNM may decide to slash the overnight policy rate by another 25 basis points to 2.50% in March or May MPC meeting.
- USDMYR year-end forecast maintained (4.10; 2019: 4.09): While improved capital flows into the emerging markets amid a low interest rate environment may support the Ringgit, downside risk remains surrounding global geopolitical unrests, in particular, the US-Iran conflict and the expectation of continued growth slowdown in key major trading partner specifically the China amid coronavirus outbreak.

Source: Kenanga Research - 10 Feb 2020