● Bank Negara Malaysia (BNM) international reserves remained on an uptrend for six straight months, increasing by USD0.6b or 0.6% MoM to a 28-month high of USD105.0b as at 30 September 2020

- Sufficient to finance 8.4 months of retained imports and is 1.1 times the total short-term external debt.

● This was attributable to an increase in foreign currency reserves, special drawing rights (SDRs) and gold

- Foreign currency reserves (+USD0.5b or 0.5% MoM to USD97.8b): highest level in 25 months, partly reflecting revaluation gains.

- SDRs (+USD0.1b or 5.9% MoM to USD1.2b): largest in 25 months.

- Gold (+USD0.1b or 4.2% MoM to USD2.3b): fastest pace of increase in three months.

● In ringgit terms, the value of BNM reserves registered the largest decline in 33 months, falling by RM10.4b or - 2.3% MoM to RM436.5, primarily due to the strengthening of the ringgit.

- USDMYR: traded at an average of RM4.1478 in September (Aug: RM4.1841), strengthening by 0.9% MoM (Aug: 1.8%), amid optimism on China’s continued economic recovery and Malaysia’s additional fiscal stimulus. However, this was limited by falling Brent crude oil prices and a global rise in risk-off sentiment.

- Regional currencies (monthly average): saw mixed results in September, as the Philippines Peso (0.7%) and Singapore Dollar (0.2%) appreciated against the U.S. dollar, whilst the Thai Baht (-0.6%) and Indonesian Rupiah (- 0.8%) weakened.

● BNM to stand pat on interest rate

- BNM to retain the OPR at 1.75% for the remainder of 2020, consistent with its less-dovish monetary policy statement, signs of a modest economic recovery and given the additional fiscal stimulus disbursement in the 4Q20.

- USDMYR year-end forecast (4.30; 2019: 4.09): Forecast retained on the back of persistently weak global oil prices, continued US–China tensions, as well as a resurgence of COVID-19 cases globally and domestically. In the near term, the ringgit will also be weighed by domestic political uncertainty.

Source: Kenanga Research - 8 Oct 2020