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.