Foreign banks shaken by malaysia’s move to halt currency slide

Foreign banks in Malaysia today were trying to work out how to comply with the central bank’s clampdown on offshore ringgit trading, a move the broader market views as a form of capital controls.

Form letters, sent this week from onshore banks to their offshore counterparts, asked compliance officers to sign commitments to cease trading the ringgit in the NDF markets and then send the letters back to Bank Negara, Reuters reported yesterday.

“There’s a massive back and forth going on between banks and Bank Negara Malaysia (BNM) now,” said a banker at a foreign bank in Malaysia that deals in foreign currency transactions.

The ringgit had fallen nearly 1 percent today to a fresh 11-month low of 4.3850 against the dollar. Currency of england in pakistan The offshore spreads in NDF markets widened, while bond yields shot higher with the 10-year benchmark yield trading 17 basis points up at 4.22 percent. What currency is used in britain It has risen nearly 60 basis points in the last week.

Investors typically use the liquid NDF markets in Singapore and Hong Kong to exchange ringgit for dollars because of the many restrictions in the domestic market.

Singapore and Hong Kong are ranked third and fourth at US$517 billion and US$437 billion respectively on global daily average turnover of foreign exchange derivatives, according to the latest survey from the Bank of International Settlements. Currency for britain The United States and Britain are the top two.

While Malaysia allows foreigners relatively open access to its domestic bond and stock markets, it prohibits any offshore trading of its currency or related derivatives.

Foreigners have been fleeing the Malaysian market in a global bond rout following Donald Trump’s election as US President last week, which sent the dollar soaring and has hit emerging market currencies particularly hard.

Bank Negara Malaysia has asked financial institutions to provide a detailed plan if they need to make ringgit transactions onshore and to seek help from Malaysian financial institutions for any foreign exchange transaction needs.

“We can take (punitive action) as they will be breaching the Foreign Exchange Administration (FEA),” assistant governor Adnan Zaylani told reporters in a briefing yesterday.

Malaysia was one of the only countries to impose capital controls during the 1997-98 Asian financial crisis by fixing the exchange rate and requiring the currency be held at least a year after the sale of Malaysian securities or assets in the country.

Foreign investors pulled RM8.4 billion out of government bonds in September, the largest outflow since August last year when Malaysia’s markets tumbled on a political crisis swirling around Prime Minister Najib Abdul Razak and corruption allegations involving indebted state fund 1Malaysia Development Berhad (1MDB).

In October, however, there were inflows of RM2.39 billion into government bonds, and foreign reserves rose to RM$97.8 billion by the end of the month, up from RM$97.7 billion at the end of September. What is the currency of britain The reserves were enough to finance 8.4 months of retained imports.