PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

22 June 2010

Foreign Exchange Reserves Rose To US$96.1bn As At

15 June

◆ The foreign exchange reserves rose by US$0.64bn or RM2.1bn in 1H June to US$96.1bn or RM314.3bn
as at 15 June, compared with a decline of US$0.6bn or RM2.0bn in 2H May. This suggests that the repatriation of
export proceeds was more than enough to offset some outflow of foreign portfolio funds and payment of import
bills. As it stands, the foreign portfolio investment in fixed income papers slowed down to RM8.5bn in April, from
+RM12.9bn in March and we expect it to fall in May. Meanwhile, total holdings in fixed income instruments by foreign
portfolio investors rose to RM93.7bn at end-April, the highest in 21 months and from RM85.2bn at end-March (Chart
1). At the current level, the foreign exchange reserves are sufficient to finance 8.2 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 as at end-February.

◆ Notwithstanding a pick-up in foreign exchange reserves, the movement of the ringgit has been volatile in recent
weeks. The ringgit took a turn and depreciated against the US dollar 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 concerns over
the policies tightening in Asia that could slow down economic activities. As a result, the ringgit fell by 2.0% against
the US dollar between 1 May and 18 June. Thereafter, it strengthened by 1.5% vis-à-vis US dollar between 18 to
22 June, following the People’s Bank of China’s move to increase the flexibility of the renminbi. 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

RM 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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 22 June 2010

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank fell to an estimate
of RM221.0bn in mid-June, after remaining relatively stable at RM226.3bn at end-May 2010 and compared with
RM223.3bn at end-2009 (see Chart 2), as funds were used to subscribe securities issued by the Government. This
was reflected in a decline in liquidity mopped up by the Central Bank through interbank borrowings, which fell to
RM130.2bn in mid-June, from RM140.9bn at end-May 2010 and RM168.3bn at end-2009. This was, however,
mitigated by a pick-up in liquidity mopped up by the Central Bank through the issuance of BNM bills, which rose
to RM75.2bn in mid-June, from RM72.2bn at end-May 2010 and RM33.4bn at end-2009. Similarly, the repurchase
agreements (repos) repos inched up to an estimate of RM15.6bn in mid-June, from RM13.2bn at end-May 2010 and
compared with RM21.6bn at end-2009. Excluding the repos, the amount of excess liquidity mopped up by the
Central Bank fell to an estimate of RM205.4bn in mid-June, from RM213.1bn at end-May 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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