Malaysia gets a boost from Fitch's outlook upgrade

“I am pleased that Fitch, the international ratings agency, has maintained Malaysia’s credit rating and revised our outlook upwards to stable.

“In view of the many uncertainties in the external sector, the newly-announced ratings are indeed a reflection of our Government’s financial management and economic policies,” the Prime Minister said in a a Facebook post on Wednesday.

The ratings agency had maintained Malaysia’s long-term foreign currency default rating (IDR) at A- and local currency at A, with the outlook revised to Stable from Negative previously.

It said Malaysia’s fiscal finances have improved and that it views progress on the GST and fuel subsidy reform as supportive of the fiscal finances.

In July 2013, Fitch had attached a “negative” outlook to Malaysia and suggested earlier this year that there was a 50 per cent chance of a downgrade in the rating.

The Malaysian ringgit led gains among emerging Asian currencies on Wednesday due to Fitch's decision. The spot ringgit rose as much as 1.2 percent to 3.7270 per dollar, its strongest since June 22, in the local market on Wednesday. Other Malaysian assets also rose. Kuala Lumpur stocks  jumped 1.6 percent, while the 10-year bond yield slid to 3.984 percent, its lowest since June 4. 

The Malaysian currency had been the second-worst performing Asian currency so far this year, partially due to worries about a potential rating downgrade.

 

Still, the ringgit's rally is unlikely to last long on expectation that the US Federal Reserve may raise interest rates later this year, analysts said.

Asian economies are also slowing with China's factory activity contracting for the fourth straight month in June. "We caution that USD/MYR may still see some upside pressure amid possible Fed tightening in September, while vulnerability to external development remains," said Christopher Wong, a senior currency analyst at Maybank in Singapore.

 

Reflecting such cautious views, the ringgit pared some of earlier gains. The spot has a chart resistance at 3.7270, the 23.6 percent Fibonacci retracement of its depreciation from April to June, analysts also said.