Weaker ringgit has limited impact on Malaysia’s rating, says Moody’s

KUALA LUMPUR: A weaker ringgit has limited direct impact on Malaysia’s sovereign credit profile as government finances are mostly denominated in ringgit terms, according to Moody’s Investors Service vice-president and senior analyst of sovereign risk, Christian de Guzman.

He cautioned that “clouds are gathering on Malaysia’s outlook” due to external headwinds and domestic risks, but reiterated that the outlook is premised on the country’s fiscal consolidation that is still expected to be intact this year.

Moody’s affirmed Malaysia’s A3 rating last January with a positive outlook.

De Guzman said the rating agency has no plans to revise its outlook for Malaysia for the time being, citing “there is not enough data to make a call either way”.

However, he pointed out that market confidence and sentiment could affect the country’s economy as evidenced by a slower growth in private investment and consumption.

While the gross domestic product (GDP) growth has slowed down, he stressed that Malaysia is still among the fastest growing economies in Asia this year.

Given the persistent drop in oil prices, de Guzman believes the government may need to further rationalise its expenses.

“The outlook for 2016 is quite weak (for oil prices), it’s yet to be seen how the government responds to this ...we’re looking for the consolidation trend to continue and with weaker oil prices that put further pressure on oil revenue, then (the government) may need further rationalisation of expenditure,” he explained.

Commenting of the continued depletion of Malaysia’s international reserves, de Guzman opined that the reserves level will remain adequate. Bank Negara Malaysia’s international reserves dipped to US$94.5 billion (RM356.4 billion) as at August 14.

Commenting on debt-ridden 1Malaysia Development Bhd (1MDB), he said the rationalisation plans that have been announced could alleviate a certain degree of contagion risks to the government.

Meanwhile, Moody’s vice-president and senior credit officer of financial institutions group Eugene Tarzimanov said Malaysian banks are still in strong position and their asset quality and liquidity of the banking system will be supported by economic growth.

“Although we see some headwinds to the banks due to weaker ringgit, the damage to the banks so far appears to be very muted,” he noted, adding that foreign currency loans account for only 10% of the banking system.

As Malaysia has a deep diversified local investor base, he said, it could cushion the volatility of the outflow of foreign funds by acquiring assets that are held by foreign investors.

On household debt, Tarzimanov is not concerned over the high indebtedness as the household debt-toGDP ratio of about 80% has stabilised over the past few years.

On monetary policy, he opined that the room to cut the overnight policy rate to mitigate slower growth is limited due to the weakening of the ringgit. Currently, the rate stands at 3.25%.