Foreign banks in Malaysia on Thursday were trying to work out how to comply with the central bank's clamp-down on offshore ringgit trading, a move the broader market views as a form of capital controls.
Form letters, sent this week from onshore banks to their offshore counterparts, asked compliance officers to sign commitments to cease trading the ringgit in the NDF markets and then send the letters back to Bank Negara, Reuters reported on Wednesday.
"There's a massive back and forth going on between banks and Bank Negara Malaysia (BNM) now," said a banker at a foreign bank in Malaysia that deals in foreign currency transactions. "This is a type of indirect capital control ... I see a flood of people exiting Malaysia."
The ringgit had fallen nearly 1 percent on Thursday to a fresh 11-month low of 4.3850 against the dollar. The offshore spreads in NDF markets widened, while bond yields shot higher with the 10-year benchmark yield trading 17 basis points up at 4.22 percent. It has risen nearly 60 basis points in the last week.
Investors typically use the liquid NDF markets in Singapore and Hong Kong to exchange ringgit for dollars because of the many restrictions in the domestic market.