Kenanga: Bank Negara may report lower reserves level

KUALA LUMPUR, Jan 23 – Kenanga Research expects that Bank Negara Malaysia may report a lower reserves level in two weeks time.

It said the recent large depreciation of the ringgit against the US dollar and the stock market sell-off suggests that the reserves level may have decreased slightly since Jan 15, 2013.

“Furthermore, uncertainty related to the results of the general election may act as a resistor to any upward pressure, on the reserves in the near future.

“Nevertheless, we continue to maintain that the reserves level may increase further at a moderate pace by the end of 2013, as the world economy gradually recovers,” it said in a research note today.

The research house said the recovery is expected to excite Malaysian exports.

“The increase of reserves may happen only after the general election which is likely to be held by the end of the first quarter of this year. So, a steadier increase is expected in the second half,” it added.

Yesterday, Bank Negara reported that its international reserves amounted to RM427.9 billion (US$140 billion), as at Jan 15, 2013.

Kenanga Research said a further strengthening of the external reserves coincided with a strong appreciation of the ringgit against the US dollar in the same period.

“The ringgit appreciated by 1.3 per cent within that particular span of two weeks. The ringgit was at 3.00 against the dollar on Jan 15,the strongest since early March last year.

“This might have reflected a continuous inflow of funds into the country, possibly through improved current and financial accounts in the balance of payment,” it added.

Meanwhile, RHB Research said the increase in the country’s foreign exchange reserve was reflected in the repatriation of export proceeds, and some inflow of foreign portfolio funds but offset partially by the payment of import bills.

It said in line with the pick-up in the foreign exchange reserve, the ringgit bounced back to appreciate by 0.4 per cent against the US dollar in the first three weeks of January.

“This was attributed to the US averting the fiscal cliff on Jan 1, which helped boost investor confidence, and attract them back to seek higher yielding currencies,” it added.

In the near-term, RHB Research expects the movement of the ringgit to be stuck in a range bound trading pattern, and its direction will continue to be determined by the flows of capital, influenced by development in the euro-debt crisis and the US economy.

“The impending general election could also influence the direction of the ringgit.

“In our view, the ringgit will likely gradually gain strength after the uncertainties clear out and on account of the sustained large current account surplus in the balance of payments.

“With stable capital flow, the ringgit is fundamentally supported at around RM3.00 against the US dollar,” said RHB Research. – Bernama



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