Lower foreign holdings of short-term securities good development, says MARC

KUALA LUMPUR: A reduction in foreign holdings of short-term securities is a welcome development in the longer term, said Malaysian Rating Corp Bhd (MARC).

MARC said many studies have highlighted the negative repercussions of short-term capital flows in economies such as Chile, Brazil and Malaysia in the 1990s.

“As such, MARC feels that a new financial landscape of lower foreign holdings of Malaysian short-term debt securities is a welcome development,” it added.

In analysing the 2016 Bank Negara Malaysia annual report, MARC said the outflows of shortterm capital from Malaysia’s bond market (i.e. less than three years) will not have a material impact on the country’s fundamentals.

On inflation, the rating agency concurs with the central bank’s forecast for the Consumer Price Index to grow at a faster pace of 3.0 to 4.0 per cent this year on account of cost push factors as a result of stronger commodity prices, especially oil and the weaker ringgit against the US dollar.

MARC said the inflation rate would likely remain higher than last year, especially in the second quarter of this year due to, among others, the lower base in the second half of last year.

Further subsidy liberalisation measures, if undertaken this year, may also add pressure on consumer prices.

On a balance, MARC foresees an average inflation rate of 2.8 to 3.3 per cent this year.

It does not anticipate Bank Negara to adjust the Overnight Policy Rate in the near term.

MARC anticipates a stronger ringgit of circa RM4.20 against the greenback.