Measures by Malaysia's central bank to encourage investors and exporters to hold the ringgit instead of the greenback are an attempt to prop up the underperforming currency, analysts said.
The measures, which took effect yesterday after being announced last Friday, compel exporters to retain up to 75 per cent of their proceeds in the Malaysian currency, with only 25 per cent to be held in a foreign currency, well down from the previous 100 per cent.
Those seeking to hold a higher balance will need approval from Bank Negara. The central bank said banks in Malaysia will offer a higher deposit rate of 3.25 per cent per year to exporters in compensation for them having to keep more cash in the country.
"Foreign currency arising from conversion of export proceeds will be used to ensure continuous liquidity of foreign currency in the onshore market," it said.
Exporters are also free to convert ringgit to meet up to six months of loan obligations denominated in a foreign currency.
Analysts said the measures are a move to stabilise the ringgit, which has been Asia's worst performing currency since Mr Donald Trump won the US presidential election in November.
The ringgit has fallen almost 6 per cent against the US dollar since then.
"The new requirements... will enhance demand for ringgit and help buffer Bank Negara's foreign reserves," UOB analyst Julia Goh said in a report yesterday.
The preemptive moves to stabilise the ringgit are aimed at tapering volatility by clamping down on potential avenues for speculation, she added.
"While the latest measures could offer a near-term boost for the ringgit, we still think the key driver will be US yields in 2017," Ms Goh said, adding that the ringgit is expected to trade at 4.35 against the greenback by mid-2017. It was around 4.45 to the US dollar yesterday.
In addition to rules for exporters, Bank Negara is also allowing residents, including resident fund managers, to hedge the US dollar to exposures up to a limit of RM6 million per client, per bank.
These measures are intended to accelerate the development of Malaysian financial markets and promote stability, the bank said.
Bank Negara insisted that the measures do not amount to capital controls but markets have remained jittery.
With a possible interest rate rise expected later this month, capital outflows have risen in Malaysia and other emerging economies as foreign investors move away from Asian stock and bonds markets in expectation of higher returns in the United States.