● Bank Negara Malaysia (BNM) international reserves rebounded by USD0.7b or 0.7% MoM to a 30-month high of USD105.3b as at 30 November 2020

− Sufficient to finance 8.6 months of retained imports and is 1.2 times the total short-term external debt.

● The rise was attributable to the improvement in financial market condition as reflected by an increase in foreign currency reserves and gold

− Foreign currency reserves (USD0.8b or 0.8% MoM to USD97.9b): rebounded after contracting in October, reaching its fastest expansion in 7 months.

− Gold (+USD0.05 or 2.1% to USD2.4b): largest ever recorded.

− Other reserve assets (-USD0.04b or -1.5% MoM to USD2.5b): decreased marginally.

● In ringgit terms, the value of BNM reserves increased by 2.6b or 0.6% MoM to RM437.5b after two consecutive months of declines

− USDMYR: gained 0.9% MoM (Oct: -0.1%) and trade at an average of RM4.1130 in November (Oct: RM4.1500), close to the level seen before the pandemic hit, as the local note gained momentum against a weakening US dollar amid Biden’s victory, favourable vaccine headlines and improving average Brent crude oil price.

− Regional currencies (monthly average): broad-based appreciation against the greenback due to global risk-on environment, led by IDR (3.7%), followed by THB (2.6%), and SGD (0.9%) and PHP (0.5%).

● BNM to keep policy rate on pause

− Although Bank Negara Malaysia (BNM) still has the capacity to cut the overnight policy rate (OPR) by another 25bps, we see a higher probability that BNM would keep the OPR unchanged at 1.75% on the back of improving economic conditions and positive vaccine sentiment. Nevertheless, risks remain tilted to the downside due to the ongoing COVID-19 pandemic.

− USDMYR year-end forecast (4.07; 2019: 4.09): Despite continuous rise in local COVID-19 cases, the ringgit is seen to remain boosted for the rest of the year as the persistent weakness of the US dollar may continue to induce risktaking. In addition, growing optimism on a COVID-19 vaccine may further boost investor confidence, prompting ringgit to further strengthen in the near term. Hence, we have revised our USDMYR year-end forecast to 4.07 from 4.30.

Source: Kenanga Research - 8 Dec 2020