Malaysia’s central bank started taking in interbank US dollar deposits for the first time last month to try and slow a slide in Asia’s worst-performing currency.
Bank Negara Malaysia is accepting deposits in small amounts, according to a person familiar with the matter, who asked not to be identified because of company policy.
The move is to help build up the country’s currency reserves, two other people said.
The monetary authority said that it is encouraging financial institutions, including branches of overseas banks, to keep foreign-currency earnings and deposits of Malaysian-based companies in the domestic market.
Falling reserves in the Southeast Asian nation have fueled speculation the central bank has been intervening by selling US dollars to help prop up the ringgit.
The holdings dropped below the US$100 billion mark in July for the first time since 2010, a blow to investor confidence. They have since recovered slightly, but are still down 19 percent this year at US$94.1 billion.
“The move will take the pressure off the ringgit,” Macquarie Bank Ltd head of currencies and fixed-income strategy Nizam Idris said in Singapore. “It will also help to stabilize foreign-exchange reserves, as it reduces the need for the central bank to intervene.”
The ringgit last month dropped to a 17-year low as Brent crude prices fell by more than half from a peak last year, crimping government revenue for the region’s only major net oil exporter.
Rising debt at state investment company 1Malaysia Development Bhd, slowing growth in China and prospects of higher US interest rates have also spurred capital outflows, weighing on the currency, which has fallen almost 19 percent this year.
The central bank on Thursday said its move is to ensure there is sufficient US dollar liquidity in the “financial system to meet the needs of businesses and households.”
“To achieve this, financial institutions, including foreign banks, are encouraged to recycle the foreign-currency earnings and deposits of local corporations in the domestic markets to ensure continuous and sufficient level of liquidity,” the e-mailed statement said.
Earlier this week, Fitch Ratings Ltd said that Malaysia might miss its fiscal deficit reduction target, adding to concern that higher US interest rates will spur more capital outflows from the country.
Malaysia’s budget shortfall next year could exceed Malaysian Prime Minister Najib Razak’s estimate of 3.1 percent of GDP due to falling commodities, Fitch said in a statement on Tuesday, as the government seeks to lower the gap to 3.2 percent this year.
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