Malaysia central bank eases foreign exchange rules, could benefit bond investors

[KUALA LUMPUR] Malaysia's central bank on Friday announced additional measures to give more flexibility to foreign investors to trade in the ringgit, and for resident businesses to manage hedging of foreign currency risks.

Bank Negara Malaysia (BNM) also announced new plans to boost liquidity in the country's secondary bond market and offer a wider range of repo securities.

The new measures come just a month before global index provider FTSE Russell decides whether it will downgrade Malaysia' market on its World Government Bond Index (WGBI) on concerns about market liquidity.

"We have had a very positive engagement with FTSE Russell... and they were very appreciative of the measures we have put in place to deepen the onshore market so that real money investors have the required access to do hedging onshore," BNM Governor Nur Shamsiah Mohd Yunus said at a news conference.

"These new measures that we have announced today seek to further deepen the onshore market."

In the latest liberalisation of BNM's Foreign Exchange Administration policy, residents can now hedge their foreign currency current account obligations up to their underlying tenure, instead of being limited to 12 months.

Resident treasury centres are also given freedom to hedge on behalf of related entities via a licensed onshore bank. Non-resident treasury centres will be allowed to do the same, either through a licensed onshore bank or appointed overseas office, after registering with the central bank.

Non-residents can also hedge on an "anticipatory" basis to settle trade in goods and services, and corporate credit facilities used for miscellaneous expenses linked to overseas investments will be excluded from domestic ringgit borrowings.

The central bank will also provide wide access to standardised foreign exchange guidelines for market participants.

To boost market liquidity, principal dealers in the secondary bond market will quote all off-the-run bonds available under the bank's Securities Operations, on top of existing commitments to provide quotes for benchmark bonds.

"The bank has also issued revised repo guidelines for industry consultation... incorporating new flexibilities such as longer tenor limit and wider range of repo securities," Governor Nur Shamsiah said.

Nur Shamsiah said the ringgit has depreciated by 1.3 per cent against the dollar so far this year, placing it "somewhere in the middle" of the basket of regional currencies.

BNM began relaxing currency conversion rules last August, two years after it restricted offshore trade of the ringgit and compelled exporters to convert 75 per cent of their export proceeds into ringgit. The rules were imposed in a bid to stem the currency's decline and encourage domestic trade of the ringgit.

REUTERS