• Bank Negara Malaysia (BNM) international reserves depleted further by USD0.5b or -0.4% MoM to a three- month low of RM113.8b as of 29 March 2024
  
  − Sufficient to finance 5.6 months of imports of goods andservices (previously retained imports: 7.0 months) and is1.0 time total short-term external debt.

• BNM’s rise in gold holdings fails to offset FX reserves dip
  
  − Foreign currency reserves (-USD0.5b or -0.5% MoM toUSD101.3b): fell for the second consecutive month,potentially due to a decrease in the converted value ofnon-USD assets, BNM’s FX intervention and capitalmarket outflows.
  
  − Gold (+USD0.2b or 8.1% MoM to USD2.7b): largestholdings on record as gold price surged by 9.8% MoM toUSD2,229.9/troy ounce, driven by a risk-off impulse.
  
  − Meanwhile, special drawing rights, other reserve assetsand IMF reserve positions remained relativelyunchanged.

• In ringgit terms, the value of BNM reserves hit a record high of RM539.0b (+RM5.7b or 2.8% MoM)
  
  − USDMYR monthly average (4.72; Feb: 4.77): appreciated as top ASEAN-5 performer in March, fuelled by net foreignbond inflows amid a robust macro landscape, notably better-than-expected IPI figures and a stable inflation rate. Theringgit found further support from continued efforts by the government and BNM to bolster the local note.Furthermore, a marginally weaker USD index (average March: 103.7; Feb: 104.1), coupled with robust economicreadings from China, has also helped strengthen the ringgit.
  
  − Regional currencies: trailing the robust ringgit's performance (1.1%), the SGD (0.3%) and PHP (0.3%) alsostrengthened against the USD. This was partly attributed to a temporary resurgence in demand for risk-on assetsdue to Fed Powell’s dovish testimony. However, the IDR weakened by 0.3% against the USD, partly due to a sharpcontraction in its trade surplus. The THB (-0.2%) also depreciated, on expectation of Bank of Thailand rate cut inApril amid continued deflationary trend and weak domestic consumption.

• Benign inflation rates and robust GDP growth outlook may keep the BNM in a holding pattern
  
  − The BNM may opt to maintain its neutral monetary policy stance for the time being, holding the overnight policy rateunchanged at 3.00% throughout the year, barring any unforeseen circumstances. This is mainly driven by ourexpectation of an average core inflation rate around 2.0% and robust GDP growth ranging from 4.5% - 5.0% in 2024.
  
  − USDMYR year-end forecast (4.42; 2023: 4.59): While a soft landing for the US economy appears more likely now,we still anticipate a cut in June. Such expectation is based on continued US disinflation due to dwindling consumersavings and emerging signs of a cooling job market. This could reduce demand for the USD and boost interest inrisk-on currencies, particularly the ringgit, in line with our expectation of BNM's status quo. Furthermore, potentialfurther tightening by the BoJ in 2H24 and China's economic recovery may further weaken the USD. This could leadto the ringgit strengthening to below the 4.50/USD level by the end of 2024.

Source: Kenanga Research - 8 Apr 2024