PETALING JAYA: Amid concerns of a downgrade on Malaysia’s sovereign rating, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said she expects a fair assessment from rating agencies on the back of the country’s strong underlying fundamentals.
“We have a strong financial system and the economy is on a steady growth path. We have a surplus on the current account and also a low level of unemployment in the region of less than 3% now,” she said.
She added that Malaysia’s external debt was at a low level, which was certainly manageable. The country also has a high level of reserves.
“We expect all these factors to be taken into consideration. On concerns of rising household debt, we have actually seen it moderate since 2010. So, all areas of vulnerability have been addressed,” she said.
Zeti also said she believed the ringgit was currently undervalued.
She expected the movement of the ringgit to reflect the country’s underlying fundamentals over time.
“The ringgit in our assessment is undervalued at this point in time, and over time, we expect it to reflect our underlying fundamentals which manifests itself in steady growth in the region of 5%,” she said after the launch of the Maybank Islamic Shariah Centre of Excellence (SCOE) at the main campus of The Global University of Islamic Finance (INCEIF) yesterday.
Analysts generally agree with Zeti’s statement, on the back of Malaysia’s steady gross domestic product (GDP) growth, a surplus in the current account and positive balance of payments, among others.
“The ringgit has depreciated partly because of the US dollar’s strength in anticipation of the Federal Reserve raising interest rates. We believe that Malaysia’s economic fundamentals, while shaken by the sharp drop in global oil prices, are still relatively sound. It continues to enjoy a sizeable current account surplus position. The ringgit should strengthen gradually toward the end of this year,” said Affin Hwang Capital economist Alan Tan.
The ringgit was trading at 3.64 against the dollar as at press time yesterday.
Malaysia’s economy expanded by 5.8% in the fourth quarter of 2014 on the back of strong domestic demand. The trade surplus was higher at RM21.5bil, while the current account remained in surplus, amounting to 4.8% of gross national income during the quarter.
However, should the Federal Reserve hike its policy rate more than current expectations, there might be some pressure on capital outflows, which could possibly lead to continued weakness in the ringgit at current levels, added Tan.
CIMB GROUP HOLDINGS BHD chief executive officer of corporate banking, treasury and markets Datuk Lee Kok Kwan agrees that the ringgit is undervalued, as GDP growth, current account and balance of payments are doing well.
He said the ringgit was also one of the few currencies where interest rates were positive and higher yielding. This is in contrast to the yen and the euro, which are at negative interest rates, while Canada and Australia have recently cut their interest rates and the likelihood of rate increases for the British pound has diminished.
“It’ll take time as there is an adjustment period as markets absorb the impact from the decline in oil and palm oil prices, plus the US economy is showing signs of strong growth. But I think as the flows adjust, Malaysia will look undervalued as its fundamentals are strong,” he said.
Zeti said the current monetary policy remained accommodative. Bank Negara, she said, would continue to evaluate and monitor the risks to inflation and growth.
On the inflation outlook, she does not expect it to dip into negative territory.
“While inflation is slightly lower than earlier expected, we don’t expect it to trend in negative territory as what we have seen in certain countries that are experiencing deflation,” Zeti said.
On a separate note, she said she was unaware of the reported RM3bil cash injection loan from the Government to sovereign wealth fund 1Malaysia Development Bhd.
Meanwhile, Maybank Islamic Bhd CEO Muzaffar Hisham expected growth in Islamic banking to continue, moving forward. In the region, Malaysia contributes some 44% of total assets to the Maybank group, while its Asean market is contributing about 25% to total assets.
“The future growth is in Asean, and we have shown nice growth in Singapore, while there is big potential for growth in Indonesia, where we are one of the fastest growing in syariah banking. So, we are quite confident that this growth will continue further,” he said after the SCOE launch yesterday.
Maybank Islamic contributed RM1.5mil for the INCEIF auditorium as well as sponsoring 15 post-graduate students in Islamic finance.
The aim of SCOE is to be the leading reference point of syariah best practices in the global Islamic arena.