Bank Negara Malaysia (BNM) has reiterated its commitment to ensuring there is sufficient ringgit liquidity in the onshore market.
According to the central bank, its recent measures have ensured sufficient ringgit and bond market liquidity, particularly the reverse repo operations, Statutory Reserve Requirement (SRR) adjustments, Principal Dealer facilities and the purchase of government bonds. The recent pick up in interbank repo market activities has also allowed banks to better manage liquidity.
“Financial Markets Association Malaysia will continue to work with insurance and asset management associations, corporates and other financial entities to increase the operational readiness on liquidity management, including ensuring that Global Master Repurchase Agreements (GMRA) are in place among market participants,” said BNM. The central bank revealed that three banks will spearhead initiatives to encourage participation in Sell and Buy Back Agreements in the Islamic market.
BNM’s Financial Markets Committee also discussed efforts to increase the number of participants in the repo market, including active participation from Development Financial Institutions (DFIs).
On US dollar liquidity
BNM has access to the United States Federal Reserve’s foreign and international monetary authorities (FIMA repo facility), which can be used to channel US dollar liquidity into the onshore market and alleviate US dollar funding needs if necessary.
“The committee noted that onshore US dollar liquidity conditions remained manageable and had improved over the past weeks following a period of heightened global risk aversion,” said BNM. “However, it also acknowledged that financial markets globally continue to be susceptible to shifts in investor sentiment and thus, US dollar liquidity remains a key factor to be closely monitored.”
On upcoming challenges
In addition to its reaffirmed commitment to provide sufficient liquidity to the wholesale interbank market, BNM will also continue to engage market participants to pre-emptively identify and manage risks. These efforts to ensure uninterrupted financial intermediation will support households and viable businesses through the current Covid-19 crisis.
BNM acknowledged that the economic impact of Covid-19 and its implication on financial markets means that the global economy will be in recession in 2020, but a strong recovery is expected for 2021. Financial markets will play a role in providing liquidity and facilitating corporate funding requirements in supporting economic activities, against the backdrop of a weak growth.
“The meeting discussed how rating actions could lead to knee-jerk reactions and increase volatility in financial markets, despite the global nature of this pandemic and the importance of fiscal spending to avoid long-term damage to the economy,” BNM said further, referring to its Financial Markets Committee meeting on 9 April. “Thus, it is important to put the one-off and transitory fiscal stimulus spending into this broader context in assessing potential ratings actions.”
Lastly, BNM said that on the fiscal policy front, the government’s fiscal stimulus measures have demonstrated its commitment to support economic growth. “The government remains committed to fiscal discipline and expects to resume fiscal consolidation efforts once economic conditions stabilise,” stated the central bank.
(Source: The Malay Mail)