Malaysia stresses no need to panic while cutting forecast

Malaysia's policy makers sought to reassure investors the economy can withstand an oil-price slump that forced the crude-producing nation to trim its growth forecast and change its budget deficit target. The ringgit fell.

The Southeast Asian nation's economy isn't in crisis, Prime Minister Najib Razak said in a speech in the administrative capital of Putrajaya today. Najib, also finance minister, said the 2015 budget gap will be 3.2 percent of gross domestic product, bigger than an October target of 3 percent, and growth will be 4.5 percent to 5.5 percent from an earlier projection of as much as 6 percent.

Crude prices at half the level of a year ago has increased pressure on Najib to accelerate the restructuring of an economy grappling with rising costs and elevated household debt. While declining investor confidence has pushed the currency to its weakest level since 2009, officials said today the country isn't in need of fiscal or monetary stimulus and Malaysia won't face an exodus of funds.

"We are taking preemptive measures following the changes in the external global economic landscape which is beyond our control," said Najib, 61. "This necessitates us to review and clarify some of our earlier macro and fiscal assumptions."

The currency fell 1 percent to 3.6075 a dollar in Kuala Lumpur Tuesday, adding to a 0.4 percent loss a day earlier, according to data compiled by Bloomberg. It fell as much as 1.2 percent earlier in the day to the lowest since April 2009.

"The ringgit is still weak because the market is reacting to the higher fiscal deficit for this year and lower GDP growth forecast," said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. "The ringgit is seeing selling pressure and could weaken further in the near term."

Fitch Ratings, which has a negative outlook on the Malaysian sovereign, said today the revised budget and growth figures reinforce that dependence on commodities remains a key credit weakness for the country. The negative outlook indicates it is "more likely than not" to downgrade the rating, which Fitch expects to review in the first half.

"The credit profile remains vulnerable to sharp movements in com- modity prices," it said. "Further measures might be required to meet the fiscal consolidation target of achieving a balanced budget by 2020." Oil-related contributions make up almost 30 percent of Malaysia's annual state revenue. The government today lowered its 2015 oil-price assumption to $55 a barrel from $100 previously. Najib sought to downplay the importance of energy exports to the economy, saying Malaysia is a net importer of crude and petroleum products if liquefied natural gas shipments are excluded. "We still see the government missing its 2015 fiscal deficit target," said Singapore-based Chua Hak Bin, an economist at Bank of America Merrill Lynch. "We think that the government's estimates are on the optimistic side." Policy makers across Europe and Asia are trying to come up with new ways to stimulate demand as the world economy falters, with the International Monetary Fund making the steepest cut to its global-growth outlook in three years in its quarterly report released late Jan. 19 in Washington.

Malaysia's central bank held borrowing costs in the two most recent policy meetings after becoming the first in Southeast Asia to raise its benchmark interest rate in 2014. Governor Zeti Akhtar Aziz has said monetary policy needs to remain accommodative to support expansion, even as the central bank predicts inflation this year will accelerate to the fastest since 2008. "From time to time, we will review our interest rates," Zeti told reporters in Putrajaya today.