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Banks (Finance)

Malaysia's Foreign Exchange Reserves Poised for Further Improvement

Strategic Insights

— 2 min read

Malaysia's foreign exchange (FX) reserves position is expected to improve in the second half of the year as the country's rapid Covid-19 vaccination drive is expected to gather speed, leading to full economic openings and sustained recoveries in capital markets and trade. The improvement in FX reserves is underpinned by the country's expected achievement of Covid-19 herd immunity by the second half of the year, which is expected to boost trade and capital markets performance. However, the country remains cautious due to the impending start of the US-China second trade talk, which could put pressure on trade and the ringgit's risk premium.

Key Takeaways:

  • Malaysia's FX reserves jumped by US$6.9 billion year-on-year to reach US$108.6 billion in the first quarter of 2021, a rise consistent with regional peers.
  • FX reserves in ringgit terms increased by almost RM11.0 billion to reach a multi-year high of RM451.0 billion in the first quarter of 2021, driven by the rebound in trade and capital markets performance.
  • FX reserves at the end of the first quarter of 2021 are sufficient to finance 8.8 months of retained imports and 1.2 times of short-term external debt, an improvement from the previous quarter.
  • Public Investment Bank Bhd expects FX reserves to improve steadily in the second half of the year, driven by full economic openings and sustained recoveries in capital markets and trade.
  • The bank remains cautious due to the impending start of the US-China second trade talk, which could put pressure on trade and the ringgit's risk premium.
  • Bank Negara Malaysia's FX reserves in ringgit terms have reached a multi-year high, driven by the rebound in trade and capital markets performance.

Statistics:

  • US$6.9 billion: Increase in FX reserves year-over-year to reach US$108.6 billion in the first quarter of 2021.
  • US$108.6 billion: FX reserves at the end of the first quarter of 2021.
  • RM11.0 billion: Increase in FX reserves in ringgit terms to reach a multi-year high of RM451.0 billion in the first quarter of 2021.
  • RM451.0 billion: FX reserves in ringgit terms at the end of the first quarter of 2021.
  • 8.8 months: Retained imports financeable by FX reserves at the end of the first quarter of 2021.
  • 1.2 times: Short-term external debt financeable by FX reserves at the end of the first quarter of 2021.

Sources:

  • Public Investment Bank Bhd, Research Note (no date)
  • Bank Negara Malaysia, FX Reserves (no date)

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