PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

7 July 2010

Foreign Exchange Reserves Fell To US$94.8bn As

At 30 June

◆ The foreign exchange reserves fell by US$1.34bn or RM4.6bn in 2H June to US$94.8bn or RM309.8bn as
at 30 June, a reversal from an increase of US$0.64bn or RM2.1bn in 1H June. This suggests that the repatriation
of export proceeds was offset by some outflow of foreign portfolio funds and payment of import bills. A loss due
to the revaluation of the foreign exchange reserves, following the strengthening of the ringgit against major currencies
during the quarter, worsened the situation. Meanwhile, the foreign portfolio investment in fixed income papers slowed
down sharply to RM0.1bn in May, from RM8.5bn in April and a high of RM12.9bn in March. As a result, total holdings
in fixed income instruments by foreign portfolio investors remained relatively stable at RM93.8bn at end-May,
compared with RM93.7bn at end-April and RM85.2bn at end-March (Chart 1). At the current level, the foreign
exchange reserves are sufficient to finance 8.1 months of retained imports and cover 4.4 times the short-term
external debt of the nation, compared with a high of 10.0 months of retained imports and 4.3x of short-term external
debt cover as at end-February.

◆ Notwithstanding a drop in foreign exchange reserves, the ringgit has turned around and strengthened against the US
dollar, following the move by China to allow its currency to appreciate. As a result, the ringgit appreciated by 1.0%
against the US dollar between 18 June and 7 July, after falling by 2.0% between 1 May and 18 June. Similarly, the
renminbi strengthened by 0.7% against the US dollar since China adopted a more flexible exchange rate on 18 June.
In the same vein, rupiah, yen and euro appreciated by 0.2%, 4.1% and 1.6% respectively against the US dollar
during the same period. In contrast, S$, baht, peso and won fell by 0.3%, 0.2%, 0.7% and 2.2% respectively against
the US dollar between 18 June and 7 July. Despite the appreciation of the ringgit, we expect the ringgit to remain
volatile and will likely fluctuate at around RM3.20-3.30/US$ for the rest of 2010 before settling at RM3.20/
US$ by end-2011.

Chart 1
Foreign Holdings Of Debt Securities

R M bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 7 July 2010

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank rose to an
estimate of RM223.7bn at-end June, from RM220.7bn in mid-June 2010 and compared with RM223.3bn at end-2009
(see Chart 2). This was reflected in a pick-up in liquidity mopped up by the Central Bank through interbank
borrowings, which rose to RM133.1bn at end-June, from RM129.9bn in mid-June 2010 and compared with RM168.3bn
at end-2009. Similarly, the repurchase agreements (repos) repos inched up to an estimate of RM18.5bn at end-June,
from RM15.6bn in mid-June 2010 and compared with RM21.6bn at end-2009. These were, however, offset partially
by a slowdown in liquidity mopped up by the Central Bank through the issuance of BNM bills, which eased to RM72.1bn
at end-June, from RM75.2bn in mid-June 2010 and RM33.4bn at end-2009. Excluding the repos, the amount of
excess liquidity mopped up by the Central Bank remained relatively stable at an estimate of RM205bn at end-June,
compared with RM205.0bn in mid-June and RM201.7bn at end-2009.

Chart 2
Excess Liquidity Mopped Up By BNM

RM bn

352

302

252

202

152

102

52

2
00 01 02 03 04 05 06 07 08 09 10

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