The implied volatility has declined from a peak of 9.7% to about 3.7% currently. The influence of offshore market activities and its damaging spill-overs to the ringgit exchange rate have subsided, consistent with the significant decline in transaction volume in the NDF market. On the other hand, foreign exchange (FX) transaction volume in the onshore market has been sustained with improving transaction costs, facilitating business transactions for all market participants. The domestic bond market has also been more stable and the risks of significant sell-offs from non-residents and other major outflows have reduced. Non-residents now hold a more manageable level of 26.4% of total government bonds outstanding, down from the high of 34.7%. During the early part of 2017, a period of significant capital outflows, the spike in bond yields was short-lived while the ringgit exchange rate remained well supported. This was due to the net export proceeds conversion rule that helped to balance the flows. Short-term positions by nonresident investors exited the market, and the majority of non-resident holdings now comprised of longer term investors, providing stability and depth to the domestic bond market. All these were made possible with the measures introduced by the Financial Market Committee (FMC) and Bank Negara Malaysia (BNM). It was part of an overall strategy to deepen and broaden the financial market. The measures removed the external destabilising influence of offshore to the onshore market, while at the same time creating a conducive environment for the domestic financial market to develop.
This is particularly the case for prices for domestically produced goods influenced by world market prices. The fall in prices for imported consumer goods is not solely attributable to exchange rate developments. Clothing prices have exhibited a falling trend over the past few years. In October 2003, clothing prices were 13.7 per cent lower than in the same month one year earlier, and almost 30 per cent lower than in 1995. In addition to low external price inflation for these goods, lower tariffs for clothing have translated into lower consumer prices. The removal of quota regulations has also led to a shift in clothing imports away from high-cost countries to countries with considerably lower production costs. The same trend has been observed for the audiovisual industry. Since the mid-1990s, prices for audiovisual equipment have fallen markedly. In October, prices for these goods were 8.5 per cent lower than one year earlier. International producers have moved production to low-cost countries, allowing them to reduce prices charged to Norwegian importers. In addition, new technology and intensified international competition have exerted downward pressure on prices. Global economic growth has been considerably weaker than expected. Changes in the economic outlook are clearly reflected in interest rate expectations. In the US, these expectations have been adjusted downwards considerably since summer 2002. At that time, market participants expected the key rate in the US to be increased to about 4 per cent towards the end of 2003.