Of late, it has been trending down, but the average volatility remains high at 10.1% compared to its 5-year average of 8.2%. On a day-to-day basis, the ringgit was also volatile, particularly prior to the USD/MYR fixing time even though it can be quiet throughout the rest of the day. As trade related FX transactions are done throughout the day, it is highly perplexing as to why trading activities and observed volatility have to be concentrated just prior to the fixing time. The only plausible reason for the above phenomena is that it emanates from the fixing orders from non-resident financial institutions 1/5  BIS central bankers' speeches  (NRFI), the transactions of which are driven by NDF market activities. As NDF is settled using fixing rate, NRFI have been using fixing orders to square their offshore NDF positions. As a consequence of such speculative activities, the ringgit fixing rate has significantly diverged from the onshore traded ringgit prices. The ringgit fixing rate was clearly out of sync with real trades and investment activities done throughout the day. The impact of NDF market volatility has been clearly pervasive in the onshore market. Several FX traders in the domestic market were observed to be looking towards the NDF market to provide cues in determining the opening market price for ringgit. And this behaviour continues throughout the day in the pricing of the ringgit. Unfortunately, our media and public were also drawn into taking the lead from these offshore rates as well.

For the ringgit exchange rate market, the past two years have been uniquely challenging. At the end of 2014, the situation appeared rather benign. The ringgit was stable, market liquidity was good, trading activity was healthy with market volumes averaging USD11.8 billion daily while the volume for USD/MYR pair averaged USD8.3 billion in 2014. The subsequent period however, precipitated by the weakening external conditions, falling oil prices and domestic uncertainties have laid bare these notions. Volume and liquidity declined, bid-offer spreads widened and at times, there were one-way markets which exacerbated any movements. Given these developments, 2015 was a year where our actions were primarily geared towards stabilizing the markets. While this was clearly achieved, it was not without cost; a reduction in foreign exchange reserves, a markedly less liquid and volatile foreign exchange market, and a weaker currency. In the midst of this, an important observation that became increasingly evident is the continued vulnerability of our markets to the arbitrary and unpredictable devices of the offshore markets. Adverse conditions brought on by the NDF market Activities in the offshore market, in particular the ringgit non-deliverable forward (NDF) market, had brought on observable adverse impacts to the onshore market. To our disappointment, onshore players had become followers rather than leaders in determining domestic market rates. Consequently, taking the lead from the NDF market, the ringgit exchange rate has been quite volatile since last year, peaking at 23.1% for its 1-month historical volatility and is the highest among regional currencies for this year.