How did Malaysia's central bank manage to simultaneously meddle in markets to support its currency and increase its foreign exchange reserves? That's a US$500 million (S$716 million) question.
Malaysia's central bank, Bank Negara Malaysia (BNM), said last week it was intervening in the market to support the ringgit, which was particularly hard hit in the "Trump tantrum" of emerging market fund outflows in the wake of Donald Trump's surprise US election win on November 8.
That intervention should have showed up in the country's foreign-exchange reserves as a decline because the central bank would usually need to sell foreign currencies to purchase ringgit.
Instead, the central bank said on Tuesday that its international reserves amounted to 407.8 billion ringgit (S$132.84 billion), equivalent to US$98.3 billion, as of November 15. That compared with the 405.5 billion ringgit, or US$97.8 billion, it had as of October 31, according to a November 7 statement.
BNM didn't immediately answer emailed requests for comment on the unusual rise in reserves, but at least one analyst noted the seeming discrepancy in the figures.
"A surprise increase in foreign-exchange reserves and BNM reassuring investors that capital markets and the banking system is deep and liquid in their policy statement leaves more questions than answers," Jason Daw, a foreign-exchange analyst at Societe Generale, said in a note on Thursday.
"Valuation effects alone should have caused reserves to fall and it is unlikely that dollar buying occurred in the November 1-15 period," he said, speculating that Malaysia's swap line with China's central bank, the People's Bank of China (PBOC), may have been tapped for dollar liquidity.
The swap arrangement allows the two central banks to provide liquidity in each other's currencies, primarily aimed at supporting trade and investment.
Daw noted that Malaysia has "significant resources" to manage any stress from outflows, such as the PBOC swap line, a Chang Mai swap line and IMF credit facilities. But he added that "sentiment has been damaged and the ringgit should remain on edge."
"Reassuring words alone will be insufficient to change the trend," he added.
For the ringgit, the trend since the US election results has been unremittingly negative. By Thursday, dollar climbed as much as 6.5 per cent against the Malaysian currency for the month so far, with the greenback fetching as much as 4.4630 ringgit, its highest since September 2015 and flirting with levels last seen during the Asian Financial Crisis in 1997.
Sentiment on the ringgit was also hurt by the central bank's warning to foreign banks to restrict trading in offshore non-deliverable forwards (NDFs) on the currency, which have fallen further than the spot rate.
While that moved appeared to be only a reinforcement of existing regulations, it spooked traders. markets tend to be more sensitive to tea-leaf reading over capital controls in Malaysia because the country was the first to impose them during the Asian Financial Crisis.