MEA: No rating review for Malaysia expected in next six months

PETALING JAYA: Malaysian Economic Association (MEA) vice-president Yeah Kim Leng said Malaysia's outlook remains stable despite credit-default-swaps (CDS) traders' opinion that Malaysia deserves "junk" status, noting that the view is not likely to influence a review of the country's ratings in the next six month.
Explaining that CDS are based on current market pricing of Malaysia's sovereign debt, he said this is a reflection of higher premium risk demanded by the investors, after incorporating the current sentiment, which has increased the cost of hedging.
"That is different from sovereign ratings given by the three international rating agencies. They've maintained Malaysia's sovereign outlook, that's more important for current investors in Malaysia's bond market," he told reporters at the Malaysian Economic Convention 2015 yesterday.
Yeah doesn't expect another review of Malaysia's sovereign rating outlook in the next six months.
From credit fundamentals, he believes that Malaysia still has a "window of opportunity" to address the concerns that have been reflected in the CDS market.
"The indicator so far is that the outlook remains stable and the flexible exchange rate enables Malaysia to adjust to the global demand and 50% drop in commodity prices," he explained.
On the currency front, Yeah expects increased volatility in the ringgit ahead of the first interest rate hike in the US since the global financial crisis.
"We still have one more hurdle to cross – the impending US Federal Reserve rate hike, which analysts expect will happen towards December," he said.
The ringgit weakened further to 4.4200 against the greenback as at 5pm yesterday.
However, at the same time, Yeah expects Malaysia's economic fundamentals to improve with stronger growth in the US.
"That will help Malaysia's underlying fundamentals, particularly on the exports side given that a weaker ringgit has translated into cost competitiveness. So we expect to see some improvement due to the cheap currency," he added.
Yeah said the ringgit will eventually self-adjust after taking into account of all the fundamentals, such as exports, current account surplus and capital inflow.
He opined that the ringgit should be trading stronger at a level above the 3.80 peg against the US dollar given positive savings-to-investments gap, interest rate and inflation.
"Once the issues (US rate hike and domestic risks) are resolved, then only we can see the ringgit reflecting its underlying fundamentals," he said.
Meanwhile, MEA president Tan Sri Sheriff Kassim is urging the government to tackle issues relating to governance and perception in order to improve market confident.
He said the government needs to continue with its commitment of reducing the country's budget deficit.
"Any expenditure that is not necessary, we should avoid and there should be stronger governance in the management of government contracts as well as proper procedures in ensuring civil servants managing public finance," he added.