Ringgit up 10% this year

KUALA LUMPUR: The ringgit strengthened by 10.1% in 2017 and the exchange rate remains stable with US dollar/ringgit one-month implied volatility at an average of 4.5% this year, according to the Financial Markets Committee (FMC).

It said the ringgit traded within the range of 4.05 to 4.09 against the US dollar in December.
“Liquidity has also improved in the onshore market and is able to meet the hedging needs of both residents and non-residents. The onshore foreign exchange (FX) market in 2017 sustained a daily average volume of US$9.9 billion (RM40.3 billion) compared to US$8.1 billion in 2016,” FMC said in a statement.
Of this, forward and swap transactions recorded an average of US$3.8 billion daily. With the improvement in liquidity, average US dollar/ringgit bid-ask spread recorded a lower average of 24 points, relative to spreads of 46 points in 2016.
The onshore FX market volumes are now primarily comprised of real sector trade flows, which account for more than 50% of the total volume. At the same time, the share of non-resident portfolio flows have decreased to less than a quarter. Currently, pricing in the onshore market is now driven by real sector activities rather than speculative transactions.
In November 2017, the third series of initiatives was introduced to the market with the aim to enhance short-selling in the bond market and smoothen liquidity between onshore licensed banks by expanding eligible collateral for liquidity operations. The measures also include the introduction of BNM Interbank Bills.
Additional FX hedging flexibilities were introduced for non-residents to manage ringgit exposures arising from ringgit-denominated crude palm oil (CPO) contracts traded on Bursa Malaysia.
“Following the implementation of the initiatives, there are encouraging signs of improvement in the balance of demand and supply of foreign currency, resulting in a more efficient FX market. Since December 2016, net export proceeds FX conversion recorded a cumulative amount of +US$8.8 billion compared to –US$0.5 billion between January and November 2016,” said FMC.
It said the Malaysian bond market continues to attract investors’ interest and the last three primary auctions of government bonds recorded participation from diverse types of investors. Non-residents participation in the bond market increased to RM6.2 billion in fourth quarter of 2017 accounting for 27.4% of total government bonds outstanding as at Dec 20, 2017. For the year, average bid-to-cover ratio stood at above two times.
The average daily trading volume in the secondary bond market recorded a level of RM3.5 billion in 2017. In November 2017, the Malaysian Government Securities’ short-selling volume increased to RM1.6 billion.
Under the hedging framework, 73 fund managers are registered with Bank Negara Malaysia (BNM), accounting for RM126.2 billion of eligible assets under management. Of this, 57 fund managers are non-residents. Since the extension of the hedging programme to corporate entities, 21 corporations including foreign entities have registered with BNM.
“BNM and FMC will continue to engage with market participants and remain focused in creating a conducive and orderly financial market environment to facilitate businesses for the benefit of the economy.”