Blog of a Sentimental Data Digger
Fitch, the international ratings agency, in its unsolicited credit rating of Malaysia, has maintained Malaysia's credit rating and revised the outlook upwards to stable. After setting the stage over months for a cut in Malaysia's debt rating which in its own words was "more than 50 per cent likely”.
Based on Maybank's FX research head Saktiandi Supaat's estimate, the downgrade fear coupled with the concern over Malaysia's rising contingent liabilities - a weakness also flagged by Fitch earlier this year - could have contributed to a 10-20 sent drop in the ringgit value against the US dollar. Other factors such as fall in oil prices and capital outflow as US rates rise also led to the ringgit being the worst performing currency in Asia this year. Malaysian equities, where foreign net sell totaled RM9 billion (S$3.23 billion) in the first half this year, far surpassing RM7 billion in the whole of 2014, and bonds have also suffered partly due to the spectre of a downgrade, according to Mr Saktiandi. The looming downgrade and Malaysia's imminent loss of the single A debt status had rattled the market and was one of the key culprits for the major slump in the ringgit which has lost nearly 8 per cent this year and 14 per cent over 12 months.
Late Tuesday night (2015 June 2nd), the UK and US-based rating firm left Malaysia's debt rating unchanged at A minus, much to the surprise of market watchers and providing a huge relief to the country's policymakers.
"It is a big positive surprise...almost equivalent to an outright upgrade compared with what they had signaled (previously)," says Nomura Holdings South-east Asia economist Euben Paracuelles.
Fitch commended Malaysia's progress of fiscal reforms chiefly this April's implementation of the Goods and Services Tax plus its fuel subsidy reforms - last year, it abolished fuel subsidies - to prop up its fiscal finances.