Intervention pushes Bank Negara's foreign currency reserves to dip below US$100bil

KUALA LUMPUR: Bank Negara Malaysia's foreign currency reserves have dipped below US$100.0 billion for the first time since November 2022,  partially due to its intervention in the foreign exchange (forex) market.

The reserves dropped by US$1.1 billion or 1.1 per cent month-on-month (MoM) to US$99.2 billion as of June 30 this year, according to Kenanga Research.

This reflects Bank Negara's intervention in the forex market and loss from the quarterly foreign exchange revaluation, due to a 0.4 per cent rise in the US dollar index (DXY) on a quarterly basis, the firm said today.

As a result, Bank Negara's overall international reserves remained on a downtrend for the third straight month, declining by US$1.3 billion or 1.1 per cent MoM to a seven-month low of US$111.4 billion as of June 30.

"This is sufficient to finance 5.0 months of imports of goods and services (previously retained imports) and is 1.0 time total short-term external debt," Kenanga Research said.

"This was attributable to a decline in foreign currency reserves, special drawing rights (SDRs) and gold," it added.

The central bank's SDRs (down by US$100 million or 2.1 per cent MoM to US$5.7 billion) saw the fastest pace of decline in nine months.

Bank Negara's gold (down by US$100 million or 2.4 per cent MoM to US$2.4 billion) suffered its first decline in nine months as gold price fell by 1.9 per cent MoM and 2.5 per cent quarter-on-quarter due to a stronger US.

RHB Research last week said Bank Negara's forex intervention had picked up steam recently to stabilise the ringgit against the greenback and a signal that an interest rate defence of the currency was not something the central bank was willing to engage in currently.

Malaysia University of Science and Technology economist Dr Geoffrey Williams said Bank Negara can only do very little to systematically influence the ringgit in the short term.

"Our foreign currency reserves are too low for the central bank to intervene for long. Increasing the overnight policy rate has a very short-term impact and could damage the ringgit in the long term," he told the New Straits Times last week.

Related Articles