● Bank Negara Malaysia (BNM) international reserves rose by USD0.9b or 0.8% MoM (Sep: -0.9%) to USD116.1b as of 29 October 2021

- Sufficient to finance 8.1 months of retained imports and is 1.3 times total short-term external debt.

● This was mainly attributable to an increase in the foreign currency reserves

- Foreign currency reserves (+USD0.8b or 0.8% MoM to USD103.3b): fastest growth in six months, partly due to a slight fall in the US dollar index (DXY) on a MoM basis.

- Other reserve assets (+USD0.1b or 1.8% MoM to USD3.1b): reverted into an uptrend.

- Gold (+USD0.04b or 2.0% MoM to USD2.2b): largest holdings in eight-months. 

● In ringgit terms, the value of BNM reserves hit a new record high of RM486.2 (+RM3.7b or 0.8% MoM)

- USDMYR monthly average (4.162; Sep: 4.167): despite a stronger average DXY of 93.9 in October (Sept: 93.0), the ringgit extended its gains by 0.1% (Sep: 1.2%) against the USD amid elevated Brent crude oil price and improving Malaysia macroeconomic figures. The local note was also supported by the positive sentiment surrounding the gradual reopening of the domestic economy, improving COVID-19 situation and the tabling of Budget 2022.

- Regional currencies: similarly, IDR (0.4%) also appreciated against the strengthening USD, mainly due to the country’s larger-than-expected trade surplus, Bank Indonesia's upbeat assessment on the economy and surging global commodity prices. In contrast, PHP (-1.2%), THB (-1.0%) and SGD (-0.2) failed to outpace the strong USD trend and depreciated against the greenback.

● BNM to stand pat on overnight policy rate (OPR) at 1.75% until at least 2H22

- Over the past month, the government has reopened most sectors of the economy as the domestic COVID-19 situation has improved significantly on the back of high vaccination rate and better compliance to the standard operating procedures. To note, as of November 8, all states are in the final phase of the National Recovery Plan except for Sarawak and Kelantan. Moving ahead, to prop up the ongoing recovery progress, we reckon that BNM will continue its loose monetary policy and keep the OPR unchanged until at least September (5th meeting for 2022).

- USDMYR year-end forecast (4.18; 2020: 4.02): despite rising optimism surrounding the outlook for the domestic economy in 2022, the local note is expected to weaken from its current level as we expect that the DXY is likely to maintain a foothold above the 94.0 level in the next few months amid Fed’s tapering decision. However, the greenback has the potential to soften if other major central banks begin to tighten their monetary policy earlier than the Fed. Regardless, the ringgit will continue to be supported by the stabilising crude oil prices and a potential improvement in the upcoming domestic macroeconomic figures.

Source: Kenanga Research - 9 Nov 2021