The Malaysian central bank, BNM, is likely to keep its overnight policy rate on hold at 3 percent during its meeting today, noted Scotiabank in a research report. This likely move will be amidst market unrest in order to help defend the depreciating Malaysian ringgit in spite of the country’s benign inflation outlook. The MYR is expected to stay vulnerable to external turmoil given the country’s high foreign ownership of local government bonds, even with rebounding oil prices.

Broadening divergence between improving oil prices and weakening MYR might hint at a more downward pressure on the local currency. Rising U.S. inflation expectations stemming from U.S. President-elect Donald Trump’s pro-growth stance have triggered capital outflows from the region including Malaysia, said Scotiabank.

As of the end of October, foreign holdings in the country’s public sector bonds were MYR 223.8 billion. This accounts for 33.8 percent of total, whereas 38 percent of foreign positions are on the balance sheets of asset management firms that can reduce their positions noticeably amidst market unrest, stated Scotiabank.

In the week ended 18 November, overseas investors lowered their positions in local shares by USD 264 million after offloading USD 184 million in the prior week. The BNM has promised to steady the markets if required. As of 15 November, Malaysia’s foreign reserves increased from MYR 97.8 billion to MYR 407.8 billion. This is enough to fund 8.4 months of retained imports. However, possible depreciation of yuan might result in additional declines in the MYR, added Scotiabank.