● Bank Negara Malaysia (BNM) international reserves fellby USD0.38b or 0.4% MoMto USD104.6b as of 30thOctober, its first decline in seven months

− Sufficient to finance 8.4 months of retained imports and is 1.0 time the total short-term external debt

● This decline was attributable to a drop in foreign currency reserves but partially capped by expansion in other components

− Foreign currency reserves (-USD0.7b or -0.7% MoM to USD97.1b): fastest deceleration in seven months.

− Other reserve assets (+USD0.1b or 3.4% MoM to USD2.5b): rebounded after contracting in September.

− IMF reserve position (+USD0.1b or 9.7% MoM to USD1.4b): fastest expansion in 18 months.

− Gold (+USD0.05b or 2.1% MoM to USD2.4b): hit a record high level.

● In ringgit terms, the value of BNM reserves registered a second successive month of decline – albeit at a slower pace – falling by RM1.6b or -0.4% MoM to RM434.9b, and reaching an 8-month low

− USDMYR: down slightly by 0.1% MoM (Sep: 0.9%)to an average of RM4.1500 in October (Sep: RM4.1478), attributable to a worsening domestic COVID-19 situation, persistent political uncertainty, and unstable crude oil prices. Nevertheless, the downside was partially capped by China’s strong economic recovery and positive monthly trade data.

− Regional currencies (monthly average): Major ASEAN currencies charted a positive trend in October, as the Indonesian Rupiah (0.6%), Singapore Dollar (0.5%) and the Thai Baht (0.4%) all appreciated against the USD, whilst the Philippines Peso remained unchanged.

● Probability raised of BNM to cut the Overnight Policy Rate (OPR) early next year

− We assign a 50% probability of a 25 bps rate cut at the next Monetary Policy Committee meeting in January, as the economy begins to suffer from another major surge in COVID-19 infections and the lockdown measures implemented to combat it.

− USDMYR year-end forecast (4.30; 2019: 4.09): Bearish outlook maintained on the back of rising COVID-19 cases locally and globally, domestic political uncertainty, and persistently weak global oil prices. However, the ringgit could find its support in the near term should a global risk-on mode follow the conclusion of the US presidential election.

Source: Kenanga Research - 9 Nov 2020