KUALA LUMPUR: Residents, including resident fund managers, may now freely and actively hedge their US dollars and renminbi exposures up to a limit of RM6 million per client per bank.
This is among several measures announced today by the Financial Markets Committee (FMC), which was established by Bank Negara Malaysia, aimed at enhancing the liquidity of the foreign exchange market. The measures are effective from Dec 5.
Another measure allows residents and non-resident fund managers to actively manage their foreign exchange exposure of up to 25% of invested assets.
To broaden accessibility of foreign investors and corporates to the onshore foreign exchange market, offshore non-resident financial institutions may participate in the Appointed Overseas Office framework which will be accorded additional flexibilities on ringgit transactions.
These flexibilities include foreign exchange hedging (own account/on behalf of client) for current and financial account based on commitment, opening of ringgit account (book-keeping) and extension of ringgit trade financing, said FMC in a statement.
The committee said that as part of streamlining treatment for investment in foreign currency assets, residents with domestic ringgit borrowings, are free to invest in foreign currency assets both onshore and abroad up to the prudential limit of RM50 million for corporates and RM1 million for individuals. Residents without domestic ringgit borrowings will continue to enjoy flexibility of investing in foreign currency assets both onshore and abroad up to any amount, it said.
“This gives equal treatment for residents with ringgit borrowings investing in foreign currency assets whether in the onshore or offshore market,” it added.
Another measure announced allows exporters to retain only up to 25% of export proceeds in foreign currency as against 100% at present. They may, however, hold higher balances with approval from BNM to meet their obligations in foreign currency. Payment by resident exporters for settlement of domestic trade in goods and services is now to be made fully in ringgit.
FMC said all ringgit proceeds from exports can earn a higher rate of return via a special deposit facility. The facility for ringgit proceeds will be offered to exporters via all commercial banks and receive a rate of 3.25% per annum. This facility will be offered until Dec 31, 2017 subject to further review.
FMC said foreign currency arising from conversion of export proceeds will be used to ensure continuous liquidity of foreign currency in the onshore market. Meanwhile, in addition to the newly announced hedging measures, FMC said exporters are also able to hedge and unhedge up to six months of their foreign currency obligations.
These measures, it said, are intended to promote a deeper, more transparent and well-functioning onshore foreign exchange market where genuine investors and market participants can effectively manage their market risks with greater flexibility to hedge on the onshore market.
A deep and liquid onshore foreign exchange market will enable investors to better manage against volatile currency movements, it added.
“The above measures are part of a series of market development initiatives by the FMC. The aspiration is to have a highly developed, liquid and deep foreign exchange market in Malaysia, to commensurate with the growth of the economy and the increasingly sophisticated needs of the users,” said the committee.
The FMC was established by Bank Negara in May 2016 with the aim of coming up with comprehensive strategies for wholesale financial markets, and comprises representatives from the central bank, and those with prominent roles in financial institutions.
