PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

21 May 2010

Foreign Exchange Reserves Inched Up To US$96.1bn

As At 14 May

◆ The foreign exchange reserves increased by US$0.1bn or RM0.3bn in 1H May to US$96.1bn or RM314.2bn
as at 14 May, compared with an increase of US$0.25bn or RM0.8bn in 2H April. This was attributed to the repatriation
of export proceeds and some inflow of foreign portfolio funds, which were partially offset by import bills. As it stands,
the foreign portfolio investment in fixed income papers bounced back to increase by RM12.9bn in March, from -
RM1.0bn in February. As a result, total holdings in fixed income instruments by foreign portfolio investors rose to
RM85.2bn at end-March, the highest in 19 months and from RM72.3bn at end-February (Chart 1). At the current level,
the foreign exchange reserves are sufficient to finance 8.3 months of retained imports and cover 4.4 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 in February.

◆ Despite a pick-up in foreign exchange reserves, the ringgit took a turn and began to depreciate against the US dollar.
This was due to flight to safety as investors pulled out their funds from emerging markets on the back of a deepening
sovereign debt crisis in Europe and rising uncertainties following the Germany’s ban on naked short-selling and
speculation against European government bonds using credit-default swaps. As a result, the ringgit fell by 3.9%
against the US dollar between 1-21 May, after appreciating by 6.8% in the previous three months. Similarly, S$, peso,
rupiah and baht depreciated by 2.9%, 4.3%, 2.9% and 0.2% respectively against the US dollar, after a gain of +2.8%,
+3.9%, +3.6% and +2.1% respectively during the same period. The euro also weakened by 6.2% but the Japanese
yen strengthened by 5.1% against the US dollar during the same period. Meanwhile, the Chinese renminbi remained
stable, as it has been pegged to the US dollar since July 2008. As a whole, we expect the ringgit to remain volatile
and it will likely fluctuate at around RM3.20-3.30/US$ for the rest of 2010 before settling at RM3.20/US$
by end-2011.

Chart 1
Foreign Holdings Of Debt Securities

R M bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

Peck Boon Soon

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

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 21 May 2010

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank inched up slightly
to an estimate of RM226.4bn in mid-May, from RM225.9bn at end-April 2010 and compared with RM223.3bn at end-
2009 (see Chart 2). This was reflected in a pick-up in liquidity mopped up by the Central Bank through interbank
borrowings, which rose to RM152.3bn in mid-May, from RM145.3bn at end-April 2010 and compared with RM168.3bn
at end-2009. Similarly, liquidity mopped up by the Central Bank through the issuance of BNM bills rose to RM63.1bn
in mid-May, from RM60.5bn at end-April 2010 and RM33.4bn at end-2009. These were, however, offset partially by
a decline in the repurchase agreements (repos), which fell to an estimate of RM10.9bn in mid-May, from RM20.1bn
at end-April 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 RM215.5bn in mid-May, from RM205.9bn at end-April 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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