Fitch downgrade unlikely to impact Malaysian financial markets, says RHB

Fitch downgrade unlikely to impact Malaysian financial markets, says RHB
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KUALA LUMPUR (Dec 7): RHB Research Institute Sdn Bhd said Fitch Ratings’ downgrade of Malaysia’s Long Term Foreign Currency Issuer Default Rating (IDR) to BBB+ from A- is unlikely to impact its financial markets on a sustained and significant basis.

In a note today, the research house said Fitch’s rating downgrade is unlikely to be followed by S&P and Moody’s in the next few months.

“We believe, post the Covid-19 pandemic, Malaysia’s fiscal authorities are likely to engage in a comprehensive fiscal consolidation strategy.

“Currently, based on our medium forecasts for gross domestic product (GDP) growth, inflation, interest rates, and exchange rates, we view Malaysia’s general government debt trajectory as sustainable,” it said.

RHB said while the 2019 general government debt/GDP ratio of 65.2% is higher than the median of 59.2% of Malaysia’s peers and is likely to rise in 2020 and potentially to some extent in 2021, the trajectory of debt sustainability remains intact.

The research house said domestic and external liquidity conditions are likely to remain ample.

“We disagree with Fitch’s utilisation of “liquid assets and liquid liabilities” in its assessment of Malaysia’s external liquidity position since what is liquid and what is illiquid at different points of the business and market cycle are purely subjective in nature.

“The other metric Fitch focused on was domestic banks capital buffers and asset quality visibility, is strange in our view since the ongoing changes in banking sector policy aren’t specific to Malaysia but also prevalent in other countries in the region,” it said.