• Bank Negara Malaysia (BNM) international reserves remained on an uptrend for three straight months, rising by USD1.0b or 0.9% MoM to a 33-month high of USD108.6b as of 29 January 2021
  • Sufficient to finance 8.6 months of retained imports and is 1.2 times total short-term external debt.
     
• An increase in foreign currency reserves and other reserve assets outweighed a decline in IMF reserve position
  • Foreign currency reserves (+USD0.7b or 0.7% MoM to USD100.4b): crossed above the USD100.0b level for the first time since May 2018, during which the previous general election was held.
  • Other reserve assets (+USD0.3b or 9.8% MoM to USD3.2b): increased to its highest level in 46 months.
  • IMF reserves position (-USD0.1b or -3.5% MoM to USD1.4b): first contraction in 10 months.
  • Meanwhile, gold holdings were relatively unchanged at USD2.4b.
     
• In ringgit terms, the value of BNM reserves registered a positive flip, rising by RM4.3b or 1.0% MoM to RM436.6b
  • USDMYR monthly average (4.04; Dec: 4.05): ringgit appreciated, albeit at a softer pace of 0.5% MoM (Dec: 1.4%), supported by higher Brent crude oil price, Fed’s reiteration of its ultra-dovish policy stance, US stimulus hopes and Moody’s reaffirmation of Malaysia’s A3 rating. The strength was partly slashed by the announcement of an emergency decree and the reimplementation of the Movement Control Order (MCO 2.0).
  • Regional currencies: excluding the PHP (0.0%), most currencies marked a modest appreciation against the greenback, led by the IDR (0.7%), followed by SGD (0.5%) and THB (0.3%).
     
• BNM is expected to stand pat on policy rate (1.75%) in the immediate term
  • This is underscored by a continued recovery in external demand, extended fiscal support and the anticipated rollout of COVID-19 vaccine beginning end-February. Nevertheless, should the COVID-19 resurgence remain unabated resulting in further extension of the MCO 2.0, we believe there is still room for BNM to cut the overnight policy rate by another 25 to 50 basis points.
  • USDMYR year-end forecast (3.95; 2020: 4.02): While we pencil in a short-term pause to the bearish USD trend amid rising US Treasury yields, we still maintain a broadly stronger ringgit outlook for 2021 on the back of the larger fiscal injection by the US, Fed’s ultra-loose monetary policy, rising commodity prices and a wider vaccine rollout.

Source: Kenanga Research - 9 Feb 2021