PP 7767/09/2011(028730)

Malaysia
Economic Highlights
• MARKET DATELINE

8 October 2010

Foreign Exchange Reserves Rose To US$100.7bn As

At 30 September

◆ The foreign exchange reserves rose by US$4.8bn in 2H September to US$100.7bn as at 30 September,

compared with an increase of US$0.65bn in 1H September. This was due to the repatriation of export proceeds and
inflow of foreign portfolio funds, which were offset partially by the payment of import bills. As it stands, foreign
portfolio investment in fixed income papers rose by RM3.4bn in August, albeit by a smaller magnitude compared with
an increase of RM5.9bn in July. As a result, their holdings in fixed income instruments rose to RM105.5bn at end-
August, the highest in more than two years and from RM102.0bn at end-July (Chart 1). Year-to-date, the foreign
exchange reserves rose by US$4.0bn. In ringgit terms, the reserves, however, fell by RM2.6bn in 2H September
to RM310.8bn as at 30 September, compared with an increase of RM2.0bn in 1H September. This was attributed to
the revaluation loss, following the strengthening of the ringgit against most major currencies during the quarter. As
a result, the foreign exchange reserves fell by RM20.6bn year-to-date. At the current level, the foreign exchange
reserves are sufficient to finance 8.5 months of retained imports and cover 4.3 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
as at end-February.

Chart 1
Foreign Holdings Of Debt Securities

RM bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

◆ In line with the increase in the foreign exchange reserves, the ringgit strengthened against the US dollar in recent
months. The ringgit appreciated by 5.4% against the US dollar between 18 June and 30 September, after depreciating
by 2.0% between 1 May and 18 June. Year-to-date, the ringgit has appreciated by 10.6% against the US dollar, the
third strongest gain after the Japanese yen and Thai baht. This was on account of a weakness in the US dollar as
investors expect the US Fed will announce its own big plan to buy government debt after its 3 November meeting.
The improving sentiment over regional currencies, after China said that it would adopt a more flexible exchange rate
on 18 June and the liberalisation of administrative rules on foreign exchange transactions by the Central Bank on
18 August further boosted the ringgit. A widening interest rate differential in favour of Malaysia versus the US, after
Bank Negara Malaysia raised its key policy rate for three times and by a total of 75 basis points this year, also helped.
This has attracted a sizeable amount of inflow of “hot money”, which has risen to a more than 2-year high in August.

Peck Boon Soon

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

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 8 October 2010

As the “hot money” could come and go at anytime, we expect the ringgit to remain volatile and will likely
fluctuate at around RM3.10-3.20/US$ for the rest of 2010. Already, the ringgit has weakened slightly lately
against the US dollar and it depreciated by 0.3% against the US dollar between 30 September and 6 October. Further
out, we expect the ringgit to trade at RM3.00-3.10/US$ in 2011.

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank rose to an estimate
of RM225.3bn at end-September, from RM223.0bn in mid-September 2010 and RM223.3bn at end-2009 (see Chart
2). This was due to a pick-up in the repurchase agreements (repos) to an estimate of RM17.9bn at end-September,
from RM15.8bn in mid-September 2010 and compared with RM21.6bn at end-2009. Similarly, liquidity mopped up
by the Central Bank through interbank borrowings inched up to RMRM123.8bn at end-September, from RM123.7bn
in mid-September 2010 and RM168.3bn at end-2009. In the same vein, liquidity mopped up by the Central Bank
through the issuance of BNM bills increased to RM83.6bn at end-September, from RM83.5bn in mid-September 2010
and compared with RM33.4bn at end-2009. Excluding the repos, the amount of excess liquidity mopped up by
the Central Bank rose to an estimate of RM207.4bn at end-September, from RM207.2bn in mid-September 2010 and
compared with RM201.7bn at end-2009.

Chart 2
Excess Liquidity Mopped Up By BNM

RM bil

352

302

252

202

152

102

52

2
00 01 02 03 04 05 06 07 08 09 10

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