Malaysia boosts forex measures to shore up Ringgit

But analysts see US yields to remain the key driver next year.

Bank Negara Malaysia (BNM) announced several measures to enhance onshore foreign exchange liquidity.

Analysts from UOB comment that they see the measures as a pre-emptive move to stabilise ringgit and support financial stability amidst potential further strengthening of the greenback as US interest rates rise.

The measures are aimed to taper volatility by clamping down potential avenues for ringgit speculation, ensuring steady demand for ringgit, and to buffer foreign reserves.

The measures include allowing flexible hedging of USD and renminbi, hedging of foreign exchange exposure for fund managers without documentation up to 25% of invested assets, streamlining of limits on investments in foreign currency assets for residents with borrowings, and requirements for exporters to convert 75% of export proceeds into ringgit.

UOB analysts note that USD/MYR stabilised at 4.45 last Friday. Upward momentum, they said, is waning rapidly and the odds for further USD strength towards the 2015 high of 4.4770 have diminished.

"From here, a move below 4.4200 would signal the start of a consolidation phase within a broad range of 4.4000/4.4680 for the next couple of weeks," they said.

While the latest measures could offer a near-term boost for Ringgit, analysts from UOB still think the key driver will be US yields in 2017.

"We expect USD/MYR at 4.35 by mid-2017," they said.