Tuesday, July 24, 2018

Effective Exchange Rate Indexes: June 2018 Update

This post is seriously late, as I’ve just switched laptops and my editing software is being cantankerous. However, the NEER and REER page has been updated, as has the Google Docs version.

Summary

Despite the moves in the bilateral USDMYR exchange rate, there has been almost no movement in either the NEER and REER since February. This also applied to the narrow and ASEAN indexes as well. In other words, almost all the currency volatility of the past six months has been due to USD movements, with very little coming from other currencies. The nominal broad index was up 5.30% yoy, but just -0.15% on the month (REER: 4.78%, -0.15%).

Breaking down on a bilateral basis, movements were predictably mixed, with the Ringgit roughly up against half the basket and down on the other half. On a cumulative three month basis, the MYR has gained the most against the EUR (+3.15%), the GBP (+2.68%), the INR (+1.78%), the THB (+1.45%), and the AUD (+1.15%). The biggest losses were against the USD bloc countries in the basket, I.e. the USD (-2.35%), the HKD (-2.28%), and the VND (-2.18%).

01_indexes

Changelog:

  1. Indexes have been updated to June 2018
  2. CPI deflators and forecasts have been updated for May/June 2018
  3. Trade weights were updated to March 2018. This required revisions to all the indexes from Jan-18 onwards

3 comments:

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  2. Bro Hisham,
    I read in the news that BNM signed bilateral swap with few other Asean countries central bank to promote local currency settlement among asean countries. Would you be able to shed the lights how does this mechanism work and how does it help the ringgit.

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    Replies
    1. @anon

      The FX market as a rule quotes everything in USD, which means that for trade between most countries, you have to transact twice to switch currencies. Bilateral swap arrangements allow for direct settlement of FX claims.

      The impact on the rate of exchange should be minimal, but swaps do have the advantage of not needing onshore USD liquidity to allow for transactions i.e. it reduces USD demand, both in terms of central bank reserves as well as for the banking system as a whole.

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