PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

22 September 2010

Foreign Exchange Reserves Rose To US$95.9bn As

At 15 September

◆ The foreign exchange reserves rose by US$0.65bn or RM2.0bn in 1H September to US$95.9bn or

RM313.3bn as at 15 September, compared with a marginal increase of US$0.15bn or RM0.5bn in 2H August. This
was likely to be driven by the repatriation of export proceeds and some inflow of foreign portfolio funds, which were
offset partially by the payment of import bills. As it stands, foreign portfolio investment in fixed income papers rose
by a larger magnitude of RM5.9bn in July, compared with +RM2.3bn in June and after slowing down sharply to
RM0.1bn in May. Consequently, their holdings in fixed income instruments rose to RM102.0bn at end-July, the highest
in two years and from RM96.1bn at end-June (Chart 1). Year-to-date, the foreign exchange reserves fell by
US$0.8bn. In ringgit terms, the reserves fell by RM18.0bn, after taking into account the revaluation loss due to
the appreciation of the ringgit against major currencies. At the current level, the foreign exchange reserves are
sufficient to finance 8.4 months of retained imports and cover 4.3 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.

Chart 1
Foreign Holdings Of Debt Securities

RM bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

◆ In line with the increase in the foreign exchange reserves, the ringgit has strengthened against the US dollar
in recent months. Between 18 June and 21 September, the ringgit appreciated by 4.9% against the US dollar,
after falling by 2.0% between 1 May and 18 June. Year-to-date, the ringgit has appreciated by 10.5% against the
US dollar, the strongest gain in the region. This was due partly to the improving sentiment over regional currencies,
after China said that it would adopt a more flexible exchange rate on 18 June. The liberalisation of administrative
rules on foreign exchange transactions by the Central Bank on 18 August and the move by China to add the ringgit
to a small group of currencies that are allowed to be traded directly against the renminbi on 19 August further
boosted the ringgit. Before the addition of the ringgit, the only few currencies with that privilege were the US dollar,
pound sterling, yen, euro and Hong Kong dollar. The news sent the ringgit to a near 13-year high of RM3.1288/
US$ on 19 August, before easing back slightly the next day. A widening interest rate differential in favour of
Malaysia versus the US, after Bank Negara Malaysia raised its key policy rate for three times and by a total of 75

Peck Boon Soon

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

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 22 September 2010

basis points this year, also helped. This has attracted a sizeable amount inflow of “hot money”, which has risen
to a 2-year high in July. As the “hot money” could come and go at anytime, we expect the ringgit to remain
volatile and will likely fluctuate at around RM3.10-3.20/US$ for the rest of 2010. Going forward, we
expect the ringgit to settle at RM3.10/US$ in 2011.

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank rose to an
estimate of RM223.0bn in mid-September, from RM218.1bn at end-August 2010 and RM223.3bn at end-2009 (see
Chart 2). This was due to a pick-up in liquidity mopped up by the Central Bank through interbank borrowings, which
rose to RM123.8bn in mid-September, from RM119.1bn at end-August 2010 and RM168.3bn at end-2009. Similarly,
liquidity mopped up by the Central Bank through the issuance of BNM bills increased to RM83.5bn in mid-September,
from RM80.0bn at end-August 2010 and compared with RM33.4bn at end-2009. These were, however, offset partially
by a decline in the repurchase agreements (repos) to an estimate of RM15.8bn in mid-September, from RM19.0bn
at end-August 2010 and compared with RM21.6bn at end-2009. Excluding the repos, the amount of excess
liquidity mopped up by the Central Bank rose to an estimate of RM207.2bn in mid-September, from RM199.1bn at
end-August 2010 and compared with 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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