Malaysia's FX reserves position may improve on vaccination drive in 2H2021

KUALA LUMPUR: Malaysia's foreign exchange (FX) reserves position could improve further, thanks to improving global sentiment following rapid COVID-19 vaccination drive that will gather speed in the second half (2H) of this year.

Public Investment Bank Bhd, in a research note today, said this would be underpinned by full economic openings and sustained recoveries in capital markets and trade.

"Though FX reserves may be subject to some volatility in the 1H amid the still-brewing headwinds of COVID-19, this is expected to improve steadily in the 2H, especially when Malaysia is expected to achieve COVID-19 herd immunity by then.

"However, we remain cautious due to the impending start of the US-China second trade talk which could begin in the 2H. This may put pressure on trade and ringgit's risk premium and therefore, our FX reserves position," it said.

Bank Negara Malaysia's (BNM) first quarter (1Q) 2021 FX reserves jumped by US$6.9 billion year-on-year (YoY) to end at US$108.6 billion, a rise that is consistent with regional peers.

FX reserves in ringgit terms, in the meantime, increased by almost RM11.0 billion to end at RM451.0 billion, a multi-year high thanks to the rebound in trade and capital markets performance.

FX reserves at the end of 1Q21 is sufficient to finance 8.8 months of retained imports (RI) and 1.2 times of short-term external debt (ST debt), an improvement against the previous quarter.

-- BERNAMA