KUALA LUMPUR: Bank Negara's Malaysia's international reserves grew by US$800 million or 0.7 per cent month-on-month (MoM) to RM113.6 billion as of May 31 after three consecutive months of decline.
Kenanga Research said the rebound was primarily attributed to an increase in the central bank's foreign currency reserves.
"Foreign currency reserves (US$0.9 billion or 0.9 per cent MoM to US$101.5 billion) increased for the first time in four months, mainly driven by substantial inflows (RM7.0 billion) from the capital market, and potentially higher repatriation of export earnings, " the firm said today.
Kenanga Research noted that the central bank's International Monetary Fund reserve positions (-US$0.1 billion or -5.1 per cent MoM to US$1.3 billion) fell at the fastest pace since March 2015.
Special drawing rights, gold and otherreserve assets remained relatively unchanged.
The firm said the value of Bank Negara's reserves, in ringgit term, almost hit the highest level on record (RM538.1 billion, up RM3.8 billion or 0.7 per cent MoM).
On the ringgit-US dollar rate, Kenanga Research said the local currency pair's monthly average rebounded to 4.72 versus 4.77 in April.
"The ringgit bounded in May, becoming one of the best-performing Asean currencies as the USD index (DXY) depreciated.
"This depreciation was driven by a lack of hawkish conviction from the US Federal Reserve, a softer US jobs report, a slowdown in core consumer price index and weak retail sales."
It added that the prospect of policy divergence between the Fed and G10 central banks also exerted pressure on the greenback.
Additionally, the ringgit was bolstered by the Bank Negara's decision to maintain the policy rate and robust domestic macroeconomic readings.
Kenanga Research expects status quo from Bank Negara amid manageable inflation outlook and solid growth prospects.
Inflation rates are expected to remain stable, averaging around 2.7 per cent in 2024.
"Our inflation forecast has already taken into account the recently announced diesel subsidy rationalisation and the potential floating of RON95 in the fourth quarter of 2024.
"Coupled with our optimistic growth forecast of 4.5-5.0 per cent, the central bank is expected to keep the overnight policy rate unchanged at 3.00 per cent potentially until the end of 2025."
Kenanga Research expects the ringgit-greenback pair to average 4.42 by year-end (2023: 4.59).