Ringgit to stabilise gradually, no more large outflows

Measures undertaken by Bank Negara Malaysia has not only helped stem the ringgit's decline but has gradually stabilised the currency, says Governor Datuk Muhammad Ibrahim."The impact of measures announced (on Dec 2, 2016) has been significant and the ringgit has been very stable the last two months and the volatility has improved (as well)," he said.

The ringgit is now at 4.43-4.42 versus the US dollar and it would improve, he said, adding that volume in the foreign exchange market had also increased to between US$8 billion and US$9 billion.

"The market would (eventually) reflect more closely to the fundamental value. It will take some time and we don't want the adjustment to be overnight, we want it to be gradual," he told a senior editors briefing Wednesday, ahead of the release of the central bank's 2016 annual report Thursday.

Among the significant measures introduced on Dec 2 was to ask exporters to convert 75 per cent of their export proceeds into ringgit.

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"But, we did this based on merits, if just say the exporters need more dollars. We will give approval on a case by case basis," he said.

Conversion of exports proceeds, year to date, stood at RM2 billion compared with -RM500,000 in 2016 and -RM8.4 billion in 2015, he said.

Muhammad also said that he did not expect large outflow of funds.

"The major non-resident participants in the market, I think, have done the rebalancing of their portfolio in the last few months. We don't expect big outflow from their portfolio. Basically, it won't be as large as in the last two months."

He explained that rebalancing portfolio was common in the marketplace.

"We are also big investors in the international market every time there is a change in the interest rate policy, we will rebalance our portfolio," the Governor said.

The same goes to non-resident participants, "they will rebalance their portfolio and (sell down) some of their holdings in Malaysia, take the money out to invest in other markets resulting in reduced demand for the ringgit".

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Touching on the bond market, he said the level of foreign holdings in the bond market was, at one time, as high as 34.7 per cent, but now it was about 25 per cent.

"(By) pure experience, (I, can say) non-resident participation of about 15-20 per cent in the bond market is more stable. If the participation is about 30-35 per cent (it can cause instability)," he explained.

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