KL lifts ban on currency swaps for foreigners

KL lifts ban on currency swaps for foreigners

KUALA LUMPUR (AFP): Malaysia's central bank has announced an
end to a six-month old ban on swap deals by banks with non-
residents in another move to woo back foreign funds and prop up
the local fledgling capital market.

"Commercial banks in Malaysia are now allowed to undertake
non-trade related swaps, including overnight swaps and outright
forward transactions on the bid-side with foreigners," a brief
central Bank Negara statement said Tuesday.

The relevant circular would be sent to the appropriate
parties, it said.

Reacting positively to the announcement, the KLSE's benchmark
86-stock weighted composite index soared 15.38 points to close
Tuesday at 1,108.18 from 1,092.8 points a day earlier.

The lifting of the February 22 ban on swaps -- which are
ringgit deposits of foreigners kept in local commercial banks
collateralized by US dollar receipts -- is seen as a further
easing of Bank Negara's restrictions on foreigners making short-
term investments in Malaysia, analysts said.

Analysts said it would spur a stronger rebound of the
Malaysian bourse, which is seeing an upturn after languishing
over the past six months.

Series

This was among the last of a series of restrictions the
central bank drew up earlier this year to clamp down on the tide
of so-called foreign hot money that flooded the local banking
system in speculative moves involving the local currency.

"These latest sequence of events clearly signify its
seriousness in wooing back the funds into the domestic capital
market," said Francis Ng, senior treasury manager of Bank Utama,
a local commercial bank.

It would further boost investor-sentiment on the Kuala Lumpur
Stock Exchange (KLSE), which had been languishing in the absence
of foreign investor support since the central bank's pain package
was imposed to penalize foreign speculative funds, Ng said.

Bank Negara, under the then governor Jaffar Hussein, imposed
at least six measures to stem the hot money tide when it felt the
inflow was creating havoc with its efforts to control inflation.

Only last week, the bank, under its new governor Ahmad Mohamed
Don, lifted an eight-month ban on the sale of short-term paper to
foreigners, which analysts said was to lure back foreign funds
into the local capital market.

In May, the bank lifted a levy on vostro accounts held by
foreigners in local banks and allowed foreigners to buy long-term
paper.

Money market dealers said they expected the central bank to
lift the last of its curbs on foreign funds by easing the
absolute limit imposed on banks on the amount of foreign fund
swaps in forward contracts a bank could handle on a single day.

The limit, which could range from five million ringgit (US$
million) to 16 million ringgit ($6.4 million), varies with
different banks.

"Today's announcement did not spell out clearly whether that
limit is lifted. That caught a lot of offshore investors,
particularly from Singapore, who assume that the limit on the
handling of offshore funds has also been lifted," said a dealer.