● Bank Negara Malaysia (BNM) international reserves fell by USD0.8b or -0.7% MoM, the sharpest drop in ninemonths, to a 3-month low of USD103.4b as at 28th February 2020.

- Sufficient to finance 7.4 months of retained imports and is 1.1 times the total short-term external debt.

● The decline in foreign reserves was due to a sharp drop in foreign currency reserves

- Foreign currency reserves (-USD1.0b or -1.0% MoM to USD96.7b): fastest deceleration in nine months.

- Other reserve assets (+USD0.2b or 6.6% MoM to USD2.5b): the highest level recorded since July 2018.

- SDRs (+USD0.1b or 5.3% to USD1.2b): fastest expansion in almost 10 years.

- IMF reserve position edged down (-USD0.02b or -1.8% MoM to USD1.1b) while gold ticked higher (+USD0.01b or 0.7% MoM to USD1.9b).

● In Ringgit terms, the value of BNM reserves decreased by RM3.0b or -0.7% MoM to RM423.3b

- USDMYR: traded at an average of RM4.1634 in January (Dec: RM4.0797), its weakest level in four months, depreciating by 2.0% MoM (Dec: +1.7%) amid Malaysia’s political instability and growing concerns over COVID- 19.

- Other regional currencies: Both Thailand and Singapore recorded the biggest loss at -2.7% MoM, while Indonesia’s currency edged down 0.3% MoM. The Philippines Peso bucked the trend, appreciating by a marginal 0.2%.

● Possibility of a third back-to-back rate cut by BNM as political and COVID-19 concerns continue to weigh on growth

- Given the double whammy that befell Malaysia on both the political front and potential coronavirus pandemic, we maintain our cautious growth outlook. As Malaysia enters the second wave of the outbreak, number of new cases have spiked, elevating concerns and continue to exert pressure on both the capital market and the economy. Consequently, the macro outlook appears rather bleak as domestic economic indicators and global trade momentum points to continued weakness. Hence, we may not be surprise if BNM decides to cut the overnight policy rate by another 25 basis points to 2.25% at its next Monetary Policy Committee meeting on 4-5th May.

- USDMYR year-end forecast (4.20; 2019: 4.09): The ringgit continues to be pressured despite two consecutive rates cut this year by BNM as investors turned edgy, resulting in foreign fund outflows. The local note was also weighed by lingering COVID-19 jitters and continued growth slowdown in key major trading partners specifically China.

Source: Kenanga Research - 9 Mar 2020