KUALA LUMPUR: Bank Negara Malaysia (BNM) has reaffirmed its commitment to ensure sufficient ringgit liquidity in the onshore market.
In a Financial Markets Committee meeting minutes released yesterday, the central bank said its recent measures, particularly the reverse repo operations, Statutory Reserve Requirement (SRR) adjustments, Principal Dealer facilities and the purchase of government bonds, have ensured sufficient ringgit and bond market liquidity.
The Financial Markets Committee comprises financial markets players and BNM.
The central bank also noted that the recent pick up in interbank repo market activities have 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.
It said three banks will spearhead initiatives to encourage participation in Sell and Buy Back Agreements among Islamic market players.
BNM said during its Financial Markets Committee meeting on April 9, 2020, the committee also discussed efforts to boost the number of participants in the repo market, including active participation from Development Financial Institutions (DFIs).
Meanwhile, on US dollar liquidity in the onshore market, BNM said it has access to the United States (US) 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 as and when 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.
“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,” said the central bank.
On challenges ahead, BNM reiterated its commitment to provide sufficient liquidity to the wholesale interbank market to ensure uninterrupted financial intermediation, which will support households and viable businesses through the current Covid-19 crisis.
It will also continue to engage market participants to pre-emptively identify and manage such risks.
“On fiscal policy, 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,” it said.
Meanwhile, on the economic impact of the Covid-19 pandemic and its implication on financial markets, BNM said the committee acknowledged that the global economy will be in recession in 2020, but expects a strong recovery in 2021.
It had acknowledged the role of financial markets in providing liquidity and facilitating corporate funding requirements in supporting economic activities, against the backdrop of a weak growth.
Financial institutions also play an important role to identify risks pre-emptively and conduct financial intermediation activities efficiently, the central bank said.
“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.
“Thus, it is important to put the one-off and transitory fiscal stimulus spending into this broader context in assessing potential rating actions,” it added. – Bernama
