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

New Straits Times - - Business -

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.

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