BNM refining proposal to enhance use of ringgit, rupee in trade

KUALA LUMPUR: Bank Negara Malaysia is fine-tuning a proposal from the Reserve Bank of India (RBI) to develop a Local Currency Settlement Framework to enhance the use of the ringgit and rupee in bilateral trade, says the investment, trade and industry ministry.

In a written response on the Dewan Negara website today, the ministry said this is expected to support and strengthen bilateral trade growth between Malaysia and India, while also expanding opportunities for entrepreneurs and investors in both countries.

It said trade in the rupee could potentially have a positive impact on trade between the two countries due to the reduction in dependency on the US dollar.

“This could directly reduce foreign currency transaction costs, which would in turn lead to more competitive pricing of goods,” said the ministry in response to a question from A Kesavadas Nair on whether trade in the rupee would reduce the cost and price of goods, following the success of Prime Minister Anwar Ibrahim’s visit to India, which secured an investment commitment of RM4.5 billion.

Quoting BNM data, the ministry said bilateral trade in goods and services settled in ringgit and rupee increased from 4.4% in 2022 to 4.8% in 2023.

It said RBI issued a circular on July 11, 2022 requiring Indian banks to provide mechanisms for invoicing, payments and settlement of trade in the rupee.

“Aligning with the RBI initiative, BNM informed that trade between Malaysia and India can be settled in rupees, and the India International Bank Malaysia is the first bank in Malaysia to implement this mechanism through the opening of a Special Rupee Vostro Account with Union Bank of India.

“Indian companies are encouraged to conduct transactions in ringgit through overseas offices appointed by BNM in India,” it said.