• Bank Negara Malaysia (BNM) international reserves reverted to a downtrend in October after five consecutive months of increase, falling by USD2.1b or - 1.8% MoM, reaching USD117.6b as of 30 October 2024
• Reserve adequacy indicators remained stable, with import coverage held steady at 4.8 months and short- term external debt coverage remained at 0.9 time.
• The decline was primarily driven by a drop in foreign currency reserves
• Foreign currency reserves (-USD2.2b or -2.0% MoM to USD104.6b): steepest drop in 13 months, partly due to significant capital outflows from the debt market (over RM11.0b), amid rising market uncertainty and potentially lower export earnings repatriation. Notably, BNM's net FX reserves rose for the fifth straight month to USD65.3b in September (Aug: USD61.2b), though this trend may reverse in October.
• Meanwhile, special drawing rights, gold, other reserve assets and IMF reserve positions remained relatively unchanged.
• In ringgit terms, BNM's reserves continued its decline, dropping to RM482.8b (-RM8.8b or -1.8% MoM)
• USDMYR monthly average (4.30; Sep: 4.27): The ringgit gave up some of its prior gains in October, as the Fed pushed back against calls for swift rate cuts, reaffirming a cautious outlook. The USD gained further momentum as market expectations aligned with the Fed's dot plot projections, bolstered by robust US jobs data from September. Safe-haven demand spiked amid escalating Middle East tensions, while repositioning in the final week of October - with markets increasingly pricing in a Trump win - lifted both the USD index (DXY) and US Treasury (UST) yields. Consequently, the 10-year MGS-UST yield spread widened to an average of -27.9 bps in October (Sep: -0.5 bps).
• Regional currencies: A stronger DXY in October (average: 103.3; Sep: 101.0) exerted broad depreciation pressure across ASEAN-5 currencies. The PHP (-2.5%), led declines, followed by the IDR (-1.7%), SGD (-1.1%), MYR (- 0.8%), and THB (-0.3%). Regional sentiment soured further as China's stimulus efforts fell short, sparking renewed capital outflows and weighing on Asian currencies.
• Monetary policy relative stability likely in 2025 despite heightened uncertainty
• While Trump's recent election victory injects renewed uncertainty and potential volatility into the global economy, we expect BNM to keep the policy rate at 3.00% through 2025, balancing economic growth with inflation risk.
• USDMYR year-end forecast (4.57; 2023: 4.59): In light of the US election outcome, we have revised our end-2024 ringgit forecast to 4.57/USD from 4.25/USD. With UST yields expected to remain above 4.00% in the near term due to expectations of a higher Federal funds rate, MY-US unfavourable yield differential may add pressure to the ringgit. Potential economic challenges in China could also impact the ringgit; however, strong domestic fundamentals and ongoing fiscal consolidation efforts should continue to shield the ringgit from any sharp depreciation.

Source: Kenanga Research - 8 Nov 2024