● Bank Negara Malaysia (BNM) international reserves remained on a downtrend, falling by USD1.7b or -1.6% MoM, the sharpest drop in 21 months, to a 15-month low of USD101.7b as at 31st March 2020

- Sufficient to finance 7.7 months of retained imports and is 1.1 times the total short-term external debt.

● Lower foreign reserves attributable to a decline in foreign currency reserves and other reserve assets

- Foreign currency reserves (-USD1.4b or -1.5% MoM to USD95.3b): steepest deceleration in 21 months, reflecting capital outflows and loss from the quarterly foreign exchange revaluation.

- Other reserve assets (-USD0.3b or -13.0% MoM to USD2.2b): lowest level in eight months.

- Gold (+USD0.1b or 6.0% MoM to USD2.0b): increased at the fastest rate in six months on higher gold prices, reflecting a rush to safety.

● In Ringgit terms, the value of BNM reserves increased by RM16.8b or 4.0% MoM, the fastest pace in 39 months to RM440.1b

- USDMYR: traded at an average of RM4.30 in March (Feb: RM4.16), MYR weakest level in 34 months, depreciating by 3.1% MoM (Feb: -2.0%) amid worsening COVID-19 situation and plummeting oil price.

- Other regional currencies (monthly avg.): broad-based depreciation against the greenback, led by the IDR (-9.3% MoM), followed by THB (-2.4%), SGD (-1.9%) and PHP (-0.3%).

● BNM to take a pause

- Against a grim economic backdrop, we note that the BNM has ample space to cut the policy rate by another 50 basis points. However, for now, we view that the probability of doing so has been reduced, given the aggressive monetary easing recently and that the BNM may decide to save its bullets for future needs.

- USDMYR year-end forecast (4.30; 2019: 4.09): Ringgit to remain volatile with a downward bias in the immediate term on expectation of prolonged risk-off mode amongst investors as the world grapples with the COVID-19 pandemic. The local note would also be weighed by growth slowdown in key trading partners and low oil prices, especially if the OPEC+ fails to reach an agreement on production cuts at an emergency meeting tomorrow.

Source: Kenanga Research - 8 Apr 2020