Malaysia limits swap transactions to $2m<\/p>\n
KUALA LUMPUR (Agencies)): The Malaysian central bank announced
\nyesterday a powerful restriction aimed at curbing swap
\ntransactions to beat currency speculators with effect from today.<\/p>\n
Malaysian banks are required to limit non-commercial
\ntransactions to US$2 million on outstanding non-commercial
\nrelated ringgit offer side swap transactions with each foreign
\ncustomer on a group basis, the central bank said.<\/p>\n
A swap enables a company to exchange the currency they hold
\nfor the currency they need.<\/p>\n
In June 1992, the central bank had used a similar weapon to
\ndiscourage inflows of speculative funds.<\/p>\n
\"Banks which have exceeded the limit will not be allowed to
\ntransact in any further non-commercial related ringgit offer side
\nswaps with such foreign customers until the outstanding amount
\nhas been reduced below the limit,\" the central bank said in a
\none-page statement here.<\/p>\n
\"Hedging requirements of foreigners for trade related and
\ngenuine portfolio and direct investments in Malaysia are not
\naffected by this measure, \" it added.<\/p>\n
The \"guardian\" of the Malaysian monetary policies said this
\nmeasure would allow domestic interest rates to be more reflective
\nof domestic conditions.<\/p>\n
\"The introduction of this measure is in line with the policy
\nobjective of promoting an environment that is stable and more
\npredictable for genuine investments,\" the central bank said.<\/p>\n
In recent weeks the local ringgit has come under extensive
\nspeculation.<\/p>\n
The Malaysian ringgit closed last Friday at 2.6285 to the U.S.
\ndollar, down four percent from its level before July 2.<\/p>\n
An analyst said the central bank's measure was a direct hit at
\ncurrency speculators.<\/p>\n
\"It is a right step in the right direction to ward off rogue
\nspeculators,\" she said, adding that the new measure could
\ninfluence interest rates to slide.<\/p>\n
Analysts had expected such a measure despite the recent
\nstrengthening of the currency, especially after Prime Minister
\nMahathir Mohamad had earlier in the week hinted of possible
\npunitive action against currency speculators.<\/p>\n
Analysts said on Friday it would be foolish to rule out the
\npossibility of anti-speculation measures being introduced.<\/p>\n
\"The fact that this (warning) was coming from the prime
\nminister, you have to take it seriously. There's a strong
\npossibility of new measures being introduced,\" said Derrick Lee,
\nsenior analyst at market analysis firm Technical Data.<\/p>\n
Speculation had been rife that Malaysia might soon impose a
\nrestriction similar to the one imposed in Singapore on foreign-
\nexchange swaps, which are forward agreements on exchanging one
\ncurrency to another.<\/p>\n
An onshore bank in Singapore is only allowed to quote to
\noffshore parties the sale side of the swap deal for a maximum $5
\nmillion per day, thus preventing internationalization of the
\nlocal currency and dampening speculative moves.<\/p>\n
\"A swap restriction would be an appropriate solution to that,\"
\nsaid Sani Hamid, an analyst at research house MMS International.<\/p>\n
Southeast Asian currencies came under speculative attack early
\nthis summer, resulting in de facto devaluations of the Thai baht
\nand the Philippine peso.<\/p>\n
Bank Negara Malaysia, the central bank, has spent $2-3 billion
\ndefending the ringgit in the past few weeks.<\/p>\n
In February 1989, Bank Negara imposed a daily limit on non-
\ntrade-related swaps -- on the sale side -- that commercial banks
\ncould undertake with offshore banks of up to $2 million per
\noffshore customer.<\/p>\n
The limits were extended to cover the bid side in June 1992.<\/p>\n
And faced with a strong flow of short-term money into the
\ncountry in 1994, Bank Negara imposed negative interest rates on
\nforeign deposits, banned swaps trading and stopped foreigners
\nfrom buying Malaysian government paper.<\/p>\n
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