PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

7 April 2010

Foreign Exchange Reserves Fell To US$95.3bn As

At 31 March

◆ The foreign exchange reserves fell by US$1.5bn in 2H March to US$95.3bn as at 31 March, compared
with a decline of US$0.04bn in 1H March. This suggests that the repatriation of export proceeds and some inflow
of foreign portfolio funds were offset by the payment for import bills. Although the foreign portfolio investment in
fixed income papers fell by RM1.0bn in February, the first decline in eight months and compared with an increase
of RM4.1bn in January, we believe the decline is likely to be temporary and the holding of fixed income papers by
foreign investors is likely to bounce back in the months ahead. Meanwhile, total holdings in fixed income instruments
by foreign portfolio investors fell to RM72.3bn at end-February, after rising to a 17-month high of RM73.3bn at end-
January (Chart 1). In ringgit terms, the foreign exchange reserves fell by a larger magnitude of
RM20.0bn in 2H March to RM311.7bn as at 31 March, compared with a decline of RM0.1bn in 1H March. This
was due mainly to a revaluation loss, following the appreciation of the ringgit against major currencies in 1Q 2010.
The ringgit appreciated by 4.3%, 5.5% and 11.5% against the US dollar, yen and euro respectively during the period.
At the current level, the foreign exchange reserves are sufficient to finance 8.8 months of retained imports and cover
4.0 times the short-term external debt of the nation, compared with 7.9 months of retained imports and 4.0x of short-
term external debt cover a year ago.

Chart 1
Foreign Holdings Of Debt Securities

RM bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

◆ Despite the drop in foreign exchange reserves, the ringgit has been on an appreciating trend against the US dollar
in recent months. This is on account of inflow of portfolio funds in anticipation of further hike in interest rates by
Bank Negara Malaysia and positive news flow following the launch of the New Economic Model to transform the
economy into a high income nation by 2020. As a result, the ringgit strengthened by 5.8% against the US dollar
from 1 February until 6 April, after falling by 0.5% in the previous two months. The appreciation of the ringgit was
the strongest in this region compared with S$, baht, peso and rupiah, which appreciated by 0.6%, 2.1%, 2.8% and
3.2% respectively against the US dollar during the same period. The Japanese yen and euro, on the other hand,

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 April 2010

fell by 5.0% and 1.4% against the US dollar during the same period, while Chinese renminbi has been pegged to
the US dollar since July 2008. We believe the surge in ringgit vis-à-vis the US dollar will likely be temporary and
might have been over done, and the ringgit will likely settle at around RM3.30/US$ by end-2010 when feel
good factor fizzles out, before strengthening back to RM3.20/US$ by end-2011.

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank fell to an estimate
of RM218.8bn at end-March, from RM222.6bn in mid-March 2010 and RM223.3bn at end-2009 (see Chart 2). This
was reflected in a drop in liquidity mopped up by the Central Bank through interbank borrowings, which declined to
RM160.0bn at end-March, from RM175.9bn in mid-March 2010 and RM168.3bn at end-2009. This was made worse
by a decline in the repurchase agreements (repos), which eased to RM23.2bn at end-March, from RM23.8bn in mid-
March 2010 and compared with RM21.6bn at end-2009. These were, however, mitigated by a pick-up in liquidity
mopped up by the Central Bank through the issuance of BNM bills, which rose to RM35.6bn at end-March, from
RM22.8bn in mid-March 2010 and compared with RM33.4bn at end-2009. Excluding the repos, the amount of
excess liquidity mopped up by the Central Bank fell to an estimate of RM195.6bn at end-March, from RM198.7bn in
mid-March 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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