Economic Highlights (Malaysia) - 08/04/2014

Foreign Exchange Reserves Retreated To USD130.2bn As At 31 March

¨      The foreign exchange reserves retreated by USD0.4bn in March to USD130.2bn as at 31 March, after dropping by USD2.5bn in February.

¨      Notwithstanding with the drop in the foreign exchange reserves, the ringgit appreciated by 0.4% against the USD in March, before reversing its course and depreciated by 0.3% from 1-7 April. The US dollar climbed higher following a round of fairly positive US economic data that has helped to bolster sentiment on the US dollar and has kept the prospect of the Federal Reserve's reduction of bond purchases intact.

¨      The upside of the US dollar, however, is capped, as the jobs recovery is still not strong enough for the Fed to speed up tapering of its monetary easing campaign and interest rates may not rise as quickly as previously expected.

¨      As a whole, the ringgit is gradually stabilising of late though it will likely remain weak at around MYR3.25-3.35/USD in the near term due to the reversal of short term capital. Nevertheless, given that the current account of the balance of payments will likely remain in surplus in 2014, it will provide some cushion to the ringgit. Once capital flows stabilise, we expect the ringgit to strengthen to MYR3.15 by end-2014.

¨      Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank remained stable at an estimate of MYR236.1bn at end-March, unchanged from end-February and compared with MYR263.5bn at end-2013.

Link to the report: Foreign Exchange Reserves Retreated To USD130.2bn As At 31 March

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