• Bank Negara Malaysia (BNM) international reserves expanded for four straight months, rising by USD0.4b or 0.3% MoM to a 34-month high of USD109.0b as of 26 February 2021
  • Sufficient to finance 8.6 months of retained imports and is 1.2 times total short-term external debt.
     
• This was underpinned by an increase in foreign currency reserves and other reserve assets
  • Foreign currency reserves (+USD0.2b or 0.2% MoM to USD100.6b): remained above the USD100.0b-level for two consecutive months.
  • Other reserve assets (+USD0.1b or 2.1% MoM to USD3.3b): rose further to its largest since March 2017.
     
• In ringgit terms, the BNM reserves sustained an uptrend, rising by RM1.3b or 0.3% MoM to RM437.9b
  • USDMYR monthly average (4.045; Jan: 4.036): ringgit depreciated marginally (-0.2% MoM; Jan: 0.5%) for the first time in four months, as the US Treasury yields surged amid economic recovery optimism and the US stimulus expectations, narrowing the yield differential against Malaysian bonds. The downside was limited by positive sentiment surrounding the easing of COVID-19 restrictions, rising Brent crude oil price and the start of Malaysia’s inoculation campaign.
     
  • Regional currencies: excluding the IDR (0.1% MoM), most currencies weakened slightly against the greenback, led by the PHP (-0.3%), followed by SGD (-0.2%) and THB (-0.1%).
     
• BNM is expected to stand pat on policy rate (1.75%) for the rest of the year
  • This is underscored by the prospect of growth recovery especially from the 2Q21 onwards, amid continued recovery in external demand, expansionary fiscal measures and the ongoing COVID-19 vaccine drive.
     
  • USDMYR year-end forecast (3.95; 2020: 4.02): In the short-term, we continue to pencil in a bullish USD trend amid soaring US Treasury yields. As for the whole 2021, we maintain our forecast of a stronger ringgit on the back of the large fiscal injection by the US, Fed’s dovish policy, rising Brent crude oil price, a wider vaccine rollout globally and the encouraging domestic economic data.

Source: Kenanga Research - 8 Mar 2021