BNM: Onshore market volume, liquidity have picked up

PETALING JAYA: The volume and liquidity in the onshore market has sustained and picked up, with more foreign investors and corporations now transacting in the onshore market, said Bank Negara Malaysia (BNM) assistant governor Adnan Zaylani Mohamad Zahid.
He said these foreign investors and corporations are now transacting in the onshore market either directly or via the arrangements that effectively are an extension of the onshore market.
“Onshore financial market liberalisation is an important journey to enhance the liquidity and depth of the markets. Yet we have to be cognizant of the risks. Further liberalisation can come but must be in a balanced form and with conditions that will ensure the central bank will always have the surveillance capacity and the instruments to intervene if necessary,” he said in a statement today.
Adnan noted that since the Financial Markets Committee (FMC) and BNM began its first series of financial market development initiatives in December 2016, the onshore foreign exchange market has become more stable and the ringgit has strengthened to better reflect the underlying strength of Malaysia’s fundamentals.
“More importantly, the vulnerabilities to the type of volatility we saw a year ago has reduced substantially. Ownership by foreign investors of ringgit debt securities has reduced, the ringgit non-deliverable forward (NDF) market has shrunk and so has the number of participants in this market,” said Adnan.
He noted that the onshore foreign exchange market has also become more liquid with greater volume and range of products, but stressed that it cannot be complacent as financial markets are always on the lookout for gaps and opportunities, and signs of whether the central bank will ease off on the NDF stance.
“If things have settled down, why not? I think it would be more productive for them to focus on enhancing their business operation and efficiency within the current parameters. There really can be no turning back on the offshore NDF stance. If anything, more should be done to keep chipping away at this offshore market,” he said.
Adnan said for many years, the onshore financial market structure and rules have been to its own disadvantage and while there were liberalisation measures afterwards, the overall pace fell behind to meet the demands of the financial markets, which led to a greatly lopsided foreign exchange market.
“On hindsight, we should have undertaken corrective measures earlier and in better times. That was always the intent, definitely at the onset of when we formed the FMC in May 2016. One thesis that drove the FMC was that as a result of tighter onshore market rules meant to curb speculative activity, we were instead pushing investors to trade in the offshore market,” he added.