Malaysia to ease onshore hedging rules as ringgit dips

Bloomberg

Malaysia said it would provide greater hedging flexibility in its onshore currency market after the central bank’s moves last month to discourage speculators saw the ringgit tumble toward its weakest since 1998. Overseas and domestic fund managers will be allowed to manage their foreign exchange exposure of as much as 25 percent of invested assets, the central bank said in a statement on Friday. It said it would ensure there will be “continuous liquidity of foreign currency” in the onshore market.
The central bank also said exporters can now hold only as much as 25 percent of export proceeds in foreign currency unless they get its approval for bigger amounts. That compares with 100 percent previously. Foreign currency arising from conversion of export proceeds will be used to ensure continuous liquidity in the onshore market, it said. The changes will take effect Monday. “These measures are intended to promote a deeper, more transparent and well-functioning onshore FX market where genuine investors and market participants can effectively manage their market risks with greater flexibility to hedge on the onshore market,” the committee said. “A deep and liquid onshore FX market will enable investors to better manage against volatile currency movements.”
Malaysia is seeking to arrest a slump in investor confidence after a crackdown on trading in the offshore, non-deliverable forwards market last month hurt sentiment. The ringgit has lost 6 percent in the past month, one of the worst performances among emerging Asian currencies. It touched 4.4707 per dollar in Kuala Lumpur on Thursday, within 0.2% of the weakest level since the depths of the Asian financial crisis more than 18 years ago.
The central bank is intervening in the onshore ringgit market, Assistant Governor Adnan Zaylani told reporters in Kuala Lumpur. “We are providing liquidity to the market and we will continue to do so even going forward if it’s necessary to maintain because we do need to sustain the market liquidity,” Adnan said. “And as this goes into implementation, of course it’s still a transition period. So if there’s a need, certainly Bank Negara will provide that liquidity.”