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Statement by Financial Markets Committee - Updates on Malaysian Financial Market

Ref No : 12/17/16 21 Dec 2017 Embargo : For immediate release    

The Financial Markets Committee (FMC) would like to provide an update on the financial markets following the last report in June 2017. In November 2017, the third series of initiatives was introduced to the market with the aim to enhance short-selling in the bond market and smoothen liquidity between onshore licensed banks by expanding eligible collateral for liquidity operations. The measures also include the introduction of BNM Interbank Bills (BNIBs). Additional foreign exchange (FX) hedging flexibilities were introduced for non-residents to manage ringgit exposures arising from ringgit-denominated crude palm oil (CPO) contracts traded on Bursa Malaysia.

The Ringgit strengthened by 10.1% in 2017 and traded within the range of 4.05 to 4.09 against the USD in December. The exchange rate remains stable with USD/MYR 1-month implied volatility at an average of 4.5% this year.

Liquidity has also improved in the onshore market and is able to meet the hedging needs of both residents and non-residents. The onshore foreign exchange market in 2017 sustained a daily average volume of USD9.9 billion compared to USD8.1 billion in 2016. Of this, forward and swap transactions recorded an average of USD3.8 billion daily. With the improvement in liquidity, average USD/MYR bid-ask spread recorded a lower average of 24 points, relative to spreads of 46 points in 2016.

The onshore FX market volumes are now primarily comprised of real sector trade flows which account for more than 50% of the total volume. At the same time, the share of non-resident portfolio flows have decreased to less than a quarter. Currently, pricing in the onshore market is now driven by real sector activities rather than speculative transactions.

Following the implementation of the initiatives, there are encouraging signs of improvement in the balance of demand and supply of foreign currency, resulting in a more efficient foreign exchange market. Since December 2016, net export proceeds FX conversion recorded a cumulative amount of +USD8.8 billion compared to –USD0.5 billion between January and November 2016.

The Malaysian bond market continues to attract investors’ interest. The last three primary auctions of government bonds recorded participation from diverse types of investors. Non-residents participation in the bond market increased to RM6.2 billion in fourth quarter of 2017 accounting for 27.4% of total Government bonds outstanding as at 20 December 2017. For the year, average bid-to-cover ratio stood at above two times.

The average daily trading volume in the secondary bond market recorded a level of RM3.5 billion in 2017. In November 2017, the Malaysian Government Securities’ short-selling volume increased to RM1.6 billion.

Under the dynamic hedging framework, 73 fund managers are registered with Bank Negara Malaysia (BNM), accounting for RM126.2 billion of eligible assets under management (AUM). Of this, 57 fund managers are non-residents. Since the extension of the dynamic hedging programme to corporate entities, 21 corporations including foreign entities have registered with BNM.

BNM and FMC will continue to engage with market participants and remain focused in creating a conducive and orderly financial market environment to facilitate businesses for the benefit of the economy.


Financial Markets Committee
21 December 2017


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