Bank Negara Malaysia (BNM) international reserves reverted to a downtrend in October after five consecutive months of increase, falling by USD2.1b or – 1.8% MoM, reaching USD117.6b as of 30 October 2024.
Reserve adequacy indicators remained stable, with import coverage held steady at 4.8 months and shortterm external debt coverage remained at 0.9 time. The decline Kenanga notes was primarily driven by a drop in foreign currency reserves
Foreign currency reserves saw its steepest drop in 13 months, partly due to significant capital outflows from the debt market (over RM11.0b), amid rising market uncertainty and potentially lower export earnings repatriation. Notably, BNM's net FX reserves rose for the fifth straight month to USD65.3b in September (Aug: USD61.2b), though this trend may reverse in October. Meanwhile, special drawing rights, gold, other reserve assets and IMF reserve positions remained relatively unchanged
In ringgit terms, BNM's reserves continued its decline, dropping to RM482.8b. USDMYR monthly average (4.30; Sep: 4.27): The ringgit gave up some of its prior gains in October, as the Fed pushed back against calls for swift rate cuts, reaffirming a cautious outlook. The USD gained further momentum as market expectations aligned with the Fed's dot plot projections, bolstered by robust US jobs data from September.
Safe-haven demand spiked amid escalating Middle East tensions, while repositioning in the final week of October — with markets increasingly pricing in a Trump win — lifted both the USD index (DXY) and US Treasury (UST) yields. Consequently, the 10-year MGS-UST yield spread widened to an average of -27.9 bps in October (Sep: -0.5 bps). Regional currencies: A stronger DXY in October (average: 103.3; Sep: 101.0) exerted broad depreciation pressure across ASEAN-5 currencies. The PHP (-2.5%), led declines, followed by the IDR (-1.7%), SGD (-1.1%), MYR (- 0.8%), and THB (-0.3%).
While Trump's recent election victory injects renewed uncertainty and potential volatility into the global economy, Kenanga said it expects BNM to keep the policy rate at 3.00% through 2025, balancing economic growth with inflation risk.
In light of the US election outcome, the house has revised its end-2024 ringgit forecast to 4.57/USD from 4.25/USD. With UST yields expected to remain above 4.00% in the near term due to expectations of a higher Federal funds rate, MY-US unfavourable yield differential may add pressure to the ringgit.
