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PP 7767/09/2010(025354)

Malaysia
Economic Highlights

MARKET DATELINE

9 August 2010

Foreign Exchange Reserves Inched Up Marginally To


US$95.0bn As At 30 July

◆ The foreign exchange reserves inched up slightly by US$0.19bn or RM0.7bn in 2H July to US$95.0bn
or RM310.6bn as at 30 July, after rising by US$0.04bn or RM0.1bn in 1H July. This suggests that the repatriation
of export proceeds and some inflow of foreign portfolio funds were more than enough to offset the payment of import
bills. As it stands, the inflow of foreign portfolio investment in fixed income papers rose by RM2.3bn in June, after
slowing down sharply to RM0.1bn in May and compared with a high of RM12.9bn in March. As a result, total holdings
in fixed income instruments by foreign portfolio investors inched up to RM96.1bn at end-June, the highest in almost
two years and from RM93.8bn at end-May (Chart 1). Year-to-date, the foreign exchange reserves fell by US$1.7bn
or RM20.7bn (including revaluation loss) in January-July. At the current level, the foreign exchange reserves are
sufficient to finance 7.9 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.

◆ Whilst the foreign exchange reserves remained relatively stable, the ringgit turned around and strengthened against
the US dollar in recent months, in line with China’s move to allow its currency to appreciate. As a result, the ringgit
appreciated by 3.0% against the US dollar between 18 June and 5 August, after falling by 2.0% between 1 May and
18 June. Similarly, the renminbi strengthened by 0.8% against the US dollar since China adopted a more flexible
exchange rate on 18 June. In the same vein, S$, peso, rupiah and baht appreciated by 2.6%, 2.7%, 1.8% and
1.0% respectively against the US dollar during the same period. The euro, yen, won and Taiwan dollar also
strengthened by 6.8%, 5.4%, 2.7% and 1.1% respectively during the period. Despite the appreciation of the ringgit,
we expect the ringgit to remain volatile and will likely fluctuate at around RM3.20-3.30/US$ for the rest
of 2010 before settling at RM3.20/US$ by end-2011. Meanwhile, year-to-date, the ringgit appreciated by 7.8%
against the US dollar.

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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9 August 2010

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank fell to an estimate
of RM216.8bn at end-July, from RM221.7bn in mid-July 2010 and RM223.3bn at end-2009 (see Chart 2). This was
reflected in a decline in liquidity mopped up by the Central Bank through interbank borrowings, which eased to
RM126.4bn at end-July, from RM138.4bn in mid-July 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 RM72.7bn
at end-July, from RM68.7bn in mid-July 2010 and compared with RM33.4bn at end-2009. Similarly, the repurchase
agreements (repos) repos rose to an estimate of RM17.6bn at end-July, from RM14.6bn in mid-July 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 RM199.2bn at end-July, from RM207.1bn in mid-July 2010 and compared with
RM201.7bn at end-2009.

Chart 2
Excess Liquidity Mopped Up By BNM
RMbn

352

302

252

202

152

102

52

2
00 01 02 03 04 05 06 07 08 09 10

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