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story by: Kristina Frunze
Offshore ringgit trading blocked? Bank of Malaysia’s new mandate
16/11/2016
Offshore ringgit trading blocked? Bank of Malaysia’s new mandate

Offshore ringgit trading blocked, as the Bank Negara Malaysia has asked all the foreign banks to commit to avoid offshore ringgit trading. How will this decision affect Malaysian currency?

16 November, AtoZForex The central bank of Malaysia, Bank Negara Malaysia, has now required all the foreign banks to make a written commitment to stop the ringgit trade in the offshore non-deliverable forwards market as a part of its latest plan to safeguard the weakening Malaysian ringgit.

Offshore ringgit trading blocked

The central bank of Malaysia has informed foreign banks, sending them a form letter, where it has asked for an “unconditional representation and commitment” to avoid trading in any offshore Malaysian ringgit non-deliverable forwards derivatives market.

The official letter from the Bank Negara Malaysia also is reportedly asking financial institutions to submit a detailed plan to the Malaysian central bank, which should list its needs to make ringgit transactions onshore. Moreover, these plans should include financial institutions’ needs in regards to seeking help from Malaysian banks for any foreign exchange transaction needs.

In addition, the letter from the central bank of Malaysia has appeared as a marked shift from Saturday’s Bank Negara Malaysia note, in which the bank has asked all the foreign funds and asset managers to get in touch with Malaysian licensed banks in order to implement any foreign exchange transactions. The notification states that the officials are making the controls on the currency stricter.

Ringgit has significantly weakened

The Chief analyst Amy Yuan Zhuang in Singapore has stated:

“It’s not surprising, given how much MYR (ringgit) has lost. It sounds like a desperate intervention.”

Malaysian ringgit has reached a 10-month low, hitting a $4.3470 at 0630 GMT.

malaysia

Relatively small reserves of the central bank of Malaysia has left the bank with fewer options, according to Amy Yuan Zhuang.

At 40 percent of the total outstanding bond market, the foreign holdings of Malaysia are one of the biggest in the Asian region. Investors usually utilize the liquid NFD markets in Singapore and Hong Kong in order to mitigate the risks in their portfolios.

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