Credit ratings agency Fitch Ratings Ltd surprised analysts by upgrading Malaysia’s sovereign outlook to “stable” from “negative,” boosting the nation’s currency yesterday and providing welcome relief to the nation’s controversy-plagued government.
In a statement just before midnight on Tuesday, Fitch affirmed the nation’s credit rating at “A-,” the fourth-lowest investment rating, and said Malaysia’s fiscal finances had improved since last month, citing progress on a newly-introduced consumption tax and fuel subsidy reforms.
“Malaysia’s rating remains supported by reasonably strong real GDP growth rates and low inflation volatility,” said Fitch, which had downgraded Malaysia’s sovereign outlook to “negative” in 2013.
The positive news helped bolster the local currency yesterday, with the ringgit at 3.73 against the US dollar, up from 3.77 on Tuesday. Malaysian stocks also rallied by the most since 2013, with the FTSE Bursa Malaysia KLCI jumping 1.6 percent.
“It [the outlook revision] is a nice surprise,” said Nicholas Teo, an analyst at CMC Markets in Singapore. “We are seeing a big bounce on the ringgit now, presumably on the back of this.”
IG Markets strategist Bernard Aw characterized the news as a “180° turn,” adding that “the market had been bearish toward the outlook, with sentiment being driven by fears the rating would be downgraded.”
“The underlying fundamentals of Malaysia’s economy are still stable,” he added.
Rising government debt, mounting stress on the ringgit and weakening oil prices have been denting Malaysia’s economy this year.
The Fitch statement is likely to be welcomed by Malaysian Prime Minister Najib Razak, who is facing pressure to get Malaysia’s financial house in order.
Along with having to deal with public anger over a newly introduced consumption tax, Najib, who is also the nation’s finance minister, has been struggling to fend off a persistent campaign for his ouster by influential former Malaysian prime minister Mahathir Mohamad.
Najib was weakened by 2013 polls in which Malaysia’s long-ruling coalition nearly lost power, and his reputation has been hammered this year by a drip-feed of damaging allegations of fraud at a debt-ridden state investment company he oversees.
Razak has skirted demands that he explain how hundreds of millions of US dollars have allegedly gone missing from deals involving 1Malaysia Development Berhad (1MDB). He has denied wrongdoing and ordered government auditors to examine 1MDB’s books.
The Malaysian Ministry of Finance yesterday called Fitch’s statement “fair and balanced.”
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