Malaysia’s forex reserves continued to decline in October 2018 to its lowest level in a year likely the result of portfolio outflows, says RHB Research.
It said on Thursday the country’s forex reserves dropped further by US$1.3bil to US$103bil as at Oct 31, from US$103bil as at end-September.
“This was likely the result of portfolio outflows, which offset the continued accumulation of surplus in the current account.
“Similarly, Malaysia’s forex reserves (in ringgit terms) declined RM5.5bil to RM421.5bil as at end-October after it rose by RM4.5bil in September,” it said.
RHB Research said at the current level, the reserves are sufficient to finance 7.5 months of retained imports – the same rate from a year earlier.
However, the reserves covered 0.9 times the short-term external debt of the nation, deteriorating from 1.1 times the year before.
“As it stands, the Malaysian equity market recorded a net outflow of RM1.4bil in October, vs a marginal RM66mil in the previous month as regional equity markets suffered a broad selldown during the month,” it said.
On the currency front, the ringgit recovered mildly by 0.3% vs the US$ to RM4.172 in the first week of November, after weakening by 1% in October amid prospects of trade war de-escalation.
Year-to-date, the ringgit is still 2.6% weaker, mainly on the back of a stronger US$ as investors flocked to safety amidst the continued tightening of the monetary policy by the US Federal Reserve.
“The ringgit is expected to remain weak in the coming weeks before settling at RM4.10 by end-2018.
“While emerging currency markets have experienced greater volatility recently following the Turkish lira crisis, the volatility has subsided somewhat and contagion effects on ringgit appear to be contained, as economic fundamentals remain strong,” RHB Research said.