In November last year, it forced currency traders overseas to stop driving the ringgit lower. It demanded that banks operating in Malaysia sign a commitment to cease trading of the currency on the offshore non-deliverable forward market.
The move came after the central bank saw how onshore rates were taking cues from abroad, as well as the fact that much of the trading offshore was speculative and had a huge influence on the ringgit’s value against the US dollar.
Bank Negara recently said that the supply of and demand for foreign currencies became more balanced after the implementation of its measures.
Stephen Innes, the head of trading (Asia Pacific) at OANDA noted that the measures Bank Negara took benefited Malaysia because it stopped “all the waves of currency speculation”.
“I thought this was a natural progression to move the trading of the Malaysian ringgit from an over-the-counter market to a credible exchange driven market,” he said. “It is bringing back speculators and bringing back market makers – two big elements that the onshore markets are missing.”
Mr Innes said those elements provide liquidity and without them, onshore liquidity becomes a concern. “I think allowing international investors access to more freely tradable and open markets – that would’ve been great for the Malaysian capital market in a sense that international investors can easily hedge their ringgit exposures,” he stated.