Moody’s: US interest rate hike impact on Malaysia minimal

KUALA LUMPUR: Malaysia’s exposure to the global economic vulnerability following the steep rise in US interest rates will be mitigated as the majority of the Government and economy’s debt is financed domestically through stable sources.

The panellists during Moody’s: Asia Pacific sovereign outlook for 2018 teleconference earlier yesterday said the impact of an interest rate shock would be most acutely felt by countries that had high gross borrowing needs, especially if they relied significantly on market borrowing and foreign-currency funding.

Moody’s Investors Service Singapore Pte Ltd assistant vice-president and analyst, Anushka Shah, said generally, Malaysia was exposed to the swing in capital flows due to shifting activities in the global financial market, and the interest rate hike by the US Federal Reserve would post some disruption to the flow into Asia and emerging countries.

“However, Malaysia has mitigating factors which could buffer the impact of a US interest rate hike. These factors include the country's measures to develop onshore foreign exchange markets, which have also strengthened the financial systems across much of the region.

“Other idiosyncratic features like the presence of deep domestic capital markets, which provide a captive source of demand for domestic bonds, coupled with the strong domestic institutional investors have also helped the country,” she said.

Additionally, Anushka said that Malaysia was seen as a country with the fastest economic growth in the Asian region due to the dynamics in its economy.

Despite the positive outlook for the country this year, household debt has remained high albeit more stable.

In the Moody's report, the research house noted that prudent banking supervision and regulation have bolstered the resilience of the banking sectors in Malaysia, Singapore, Taiwan and Thailand, thereby limiting the risk that a housing market downturn would threaten financial stability with significant fiscal costs to the government.

Commenting on APAC as a whole, she noted that the economies were well-positioned to benefit from a favourable global growth, thus, this would support the reform process.

The favourable global economic growth would underpinned Moody's stable outlook for sovereign creditworthiness in APAC over the next 12 to 18 months, although high leverage remains a key credit constraint.

“Robust economic strength in the region and high levels of trade openness leave the region's sovereigns well positioned to benefit from stronger global gross domestic product growth," said Anushka. APAC emerging markets are expected to grow by 6.5% this year, frontier economies by 5.9% and advanced economies by 1.8%. — Bernama