KUALA LUMPUR: A desire for higher returns and uncertainty over the ringgit are among the main reasons behind the increase in foreign currency holdings among Malaysians, said economists.

This is spurred by the comparatively higher United States Federal Fund Rate, currently at 5.50 per cent, which amplifies the appeal of foreign currency investments.

But repatriation of funds at current exchange rates could be a win-win situation as they would get more ringgit, they added.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said many Malaysians were opting to hold foreign currencies, particularly the US dollar, in pursuit of higher returns. "But if they were to bring back the money, they could deposit it with local banks. Deposit markets are extremely competitive now, so they may get a better deal in terms of deposit rates."

Overall, Afzanizam said the stability of the ringgit heavily impacted individual decisions on the repatriation of funds, with the primary factor being interest rate differentials.

Malaysian University of Science and Technology Prof Geoffrey Williams said many Malaysian companies preferred to keep foreign currencies as they wanted to enjoy higher returns.

"But it may be good to repatriate funds now as you may not get such good rates in the future. It is a good strategy to follow the advice of Bank Negara Malaysia and repatriate now because the current rates may not be around for long," he noted.

Tradeview Capital Sdn Bhd vice-president Tan Cheng Wen said the key reason most Malaysians kept their foreign currency holdings was due to a lack of confidence in the ringgit."We think that a win-win situation would be where companies repatriate funds voluntarily in anticipation of stronger ringgit, rather than one where they are forced to do so. One benefit of repatriating funds is that the firms might benefit from a rebound in ringgit."Tan emphasised that a more stable ringgit would alleviate concerns and reduce the need to diversify into foreign currency assets.

Bank Negara Malaysia governor Datuk Abdul Rasheed Ghaffour previously said the central bank observed a concerning trend of increasing foreign currency holdings among Malaysian corporates, exporters and importers.

This accumulation of foreign currency has led to an imbalance that is weakening the ringgit in the short term.

"We noticed an increasing trend by certain exporters taking time to convert their export proceeds, importers frontloading the purchases of foreign currency, and corporates not converting their overseas investment income."This behaviour has contributed to the imbalances in the forex market," he said.

As such, Abdul Rasheed urged Malaysian businesses to repatriate their overseas investment incomes promptly and convert export proceeds to ringgit.

He said this would support the central bank's efforts to manage short-term pressure on the local currency. The ringgit hit its lowest point in 26 years last month, reaching 4.800 against the US dollar. This level was last observed in 1998 during the peak of the Asian financial crisis, when it reached a record low of 4.885 against the greenback.The ringgit maintained its upward trajectory yesterday, opening higher against the US dollar on sustained buying support.

https://www.nst.com.my/business/economy/2024/03/1029351/corporates-individuals-increasing-foreign-currency-holdings-search