Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily, on September 29, 2015.

 

Yeah: We still have one more hurdle to cross, which is the impending rate hike by the US.

KUALA LUMPUR: The Malaysian Economic Association (MEA) sees increasing volatility ahead for the ringgit, in view of the impending interest rate hike by the US Federal Reserve (Fed), which is now widely expected take place at the end of the year.

MEA vice-president Dr Yeah Kim Leng said the rate hike is another hurdle for the ringgit, besides other global factors like the slowdown in China, the downturn in commodity prices, and the domestic issues affecting the Malaysian market.

“We still have one more hurdle to cross, which is the impending rate hike by the US. Most analysts are expecting it to happen sometime in December. This is another hurdle, given that it would result in greater volatility in the market,” he said.

Yeah, who is also the dean for the school of business at Malaysia University of Science and Technology, was speaking to reporters on the sidelines of the Malaysian Economic Convention 2015 yesterday.

Despite the expected volatility increase, Yeah still sees some improvement in Malaysia’s fundamentals, mainly in its exports market, as the external environment improves.

“We expect the improving external environment, particularly the stronger growth in the US and also China’s stabilisation of its economy, will lend to greater stability in the commodities market and the demand side.

“This will help the underlying economic fundamentals, particularly exports, to manifest in terms of stronger performance, as the weaker ringgit has translated into cost competitiveness in terms of exports,” he said.

With all the fundamental factors in place, Yeah said this will assist in addressing any overshooting of the ringgit.

As to the recent “junk” categorisation of Malaysia by credit default swap traders, he said this is due to the deterioration of the pricing of the country’s sovereign debt, as investors demand a higher risk premium due to the uncertainties in the external and domestic environments.

However, he highlighted that this is different from the sovereign ratings assigned by the three international rating agencies, namely Moody’s, Standard & Poor’s and Fitch Ratings.

“All three have maintained Malaysia’s sovereign outlook and that is more important for current investors in the Malaysia government securities market. Most of them have assigned a stable outlook for Malaysia.

“Indication so far is that the outlook remains stable, and the flexible exchange rate, despite the sharp depreciation, has enabled Malaysia to adjust to the sharp fall in global demand, as well as the sharp drop in commodity prices.

“These are the fundamentals that rating agencies are looking at more, principally, Malaysia’s fiscal ability to meet its commitments, such as the government’s 3% deficit target,” said Yeah.

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