Tuesday, November 29, 2016

Bank Negara wants rules of NDF market to be changed

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Bank Negara Malaysia Governor Datuk Muhammad Ibrahim: "Perhaps it is time to change the rules of the game."
Bank Negara Malaysia Governor Datuk Muhammad Ibrahim: "Perhaps it is time to change the rules of the game."

KUALA LUMPUR: Bank Negara Malaysia (BNM) wants a change in the rules for the offshore ringgit non-deliverable forward  (NDF) market following the recent weeks of speculative position taking.

Saying that “perhaps it is time to change the rules of the game,” central bank governor, Datuk Muhammad Ibrahim said on Monday that the financial market players, especially those in the NDF market, need to be as transparent as the demands they expect of others. 
“Similarly, jurisdictions that govern them ought to make this opaque market more transparent and accountable,” he added in his keynote address at the Global Banking Leaders programme here,

Paradoxically, while there has been tremendous demand globally for transparency on governments and policymakers, the same level of intensity is not necessarily reflected for financial market players, he pointed out.

StarBiz reported there has been a substantial selldown in government bonds, led by foreign selling, since the aftermath of the US presidential election.

The rout in the country’s bond market saw the Malaysian Government Securities (MGS) yields rising at its fastest pace ever to around 15-month high in a matter of two weeks.  The ringgit is now hovering at its lowest levels in 19 years as a result of continued capital outflow.

Speaking on recent developments in the ringgit exchange market and BNM’s announcements to reinforce and strengthen the market from being adversely impacted by speculative activities, he said:

“Our market activity and exchange rate should reflect the economic realities of Malaysia. As such, when it comes to the pricing of the ringgit exchange rate, it should never be disconnected from real economic activities in the onshore market,” he said.

He said in recent weeks, speculative position taking in the offshore ringgit NDF market has had adverse impact on the domestic foreign exchange market.

“While the ringgit faced the same external shocks as many neighbouring countries, activities in this opaque market had exacerbated the depreciation pressure by disrupting the price discovery process. This, for me, should not be tolerated.

“For a small but highly open economy like ours, we face unique challenges. The volatile and erratic movements in the financial markets render the opening up of financial markets and continuous liberalisation more challenging.

“Nevertheless, as an economy that operates on free market principles, it is still a path we need to take. But we need to open up responsibly – we have to ensure the markets, players and products in our economy are transparent, fair and serve their intended purposes,” he said.

Muhammad also said BNM had been taking measures to reduce the speculative and damaging influence of NDF since the early 2010s.

“It is our responsibility to ensure orderly functioning of the foreign exchange market and maintain public confidence in the financial system. The recent actions by the Bank (BNM) are merely to reinforce our existing policy on offshore trading of the ringgit.

“Besides reducing the detrimental effects of financial market speculation on our markets, these policy reinforcements are aimed at instilling greater transparency, integrity and fairness in our financial markets. This is our responsibility as regulators and policymakers, of financial market development that aspires to see a more open and transparent market,” he said.

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