Malaysia stresses no need to panic while cut­ting fore­cast

The Pak Banker - - 6BUSINESS -

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.

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