KL warns against offshore ringgit trading

The ringgit has been the worst- performing currency in Asia since Mr Trump's win in the US presidential election on Nov 8 sparked a global sell-off in emerging markets.
The ringgit has been the worst- performing currency in Asia since Mr Trump's win in the US presidential election on Nov 8 sparked a global sell-off in emerging markets.ST PHOTO: MARK CHEONG

'Supervisory intervention' will be taken against non-compliance, says Bank Negara

KUALA LUMPUR • Malaysia's central bank has said "prompt supervisory intervention" will be taken against any individual or bank in the country that is engaged in the ringgit trade in non-deliverable forwards (NDF), which is the offshore ringgit market.

Bank Negara Malaysia (BNM) governor Muhammad Ibrahim said it has been made clear to local banks that the price of the ringgit quoted by them at the opening of the market in Malaysia cannot reference offshore prices, or be out of sync with the underlying fundamentals of the economy.

He denied that the central bank is restarting capital controls, which Malaysia carried out between 1998 and 2005.

"This week has seen many noises surrounding these measures. There is no new policy on capital flows. There is no proxy capital control either," Datuk Muhammad said in a speech at an event on Friday night. The speech was released to the media yesterday.

On Friday, the central bank confirmed that it had been intervening in the onshore market to stem the slide in the ringgit, which has been Asia's worst-performing currency since Mr Donald Trump's surprising win in the United States presidential election on Nov 8 sparked a global sell-off in emerging markets.

NO CAPITAL CONTROL

This week has seen many noises surrounding these measures. There is no new policy on capital flows. There is no proxy capital control either.

BANK NEGARA MALAYSIA GOVERNOR MUHAMMAD IBRAHIM, on speculation that it is restarting capital controls.

Emerging Asian currencies and bonds lost ground as investors feared that higher US interest rates once Mr Trump assumes the presidency would spark capital outflows from the region.

BNM sent out form letters last week from banks in Malaysia to their offshore counterparts and clients. The letters asked them to sign a commitment to cease trading the ringgit in the NDF markets and then send the letters back to the central bank.

BNM said the clampdown was to "ensure orderliness and stability of our markets", but stressed that it did not amount to capital controls.

The ringgit on Friday slid to a fresh 11-month low of 4.41 against the US dollar.

Mr Muhammad said in his speech on Friday that the central bank will implement several measures to boost onshore ringgit trade, particularly against the US dollar and Chinese yuan.

These will include a pilot programme that will allow onshore hedging of dollar and yuan transactions against the ringgit without the need to see underlying documents, and the introduction of onshore dollar and yuan futures against the ringgit.

The central bank governor said it is also finalising an operational framework for foreign-exchange administration compliance that will set an industry standard for minimum due diligence and provide more clarity and efficiency in foreign exchange and hedging transactions.

"Taken together, these three measures are targeted at residents such as the small and medium-sized enterprises, with a view to expand their access to hedge freely and directly with onshore banks," said Mr Muhammad.

REUTERS

A version of this article appeared in the print edition of The Sunday Times on November 20, 2016, with the headline 'KL warns against offshore ringgit trading'. Print Edition | Subscribe