Selasa, 3 Disember 2013

The Star Online: Business

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The Star Online: Business

Moody's justifies positive A3 rating for M'sia based on fiscal consolidation and reforms


PETALING JAYA: The positive outlook for Malaysia's A3 rating is based on the improved prospects for fiscal consolidation and reforms, as well as the country's resilient growth, benign inflation rate and current account surplus, said Moody's Investors Service.

Moody's said that while the execution of reforms would be politically and administratively challenging, it would result in narrower fiscal deficits that would stabilise the country's debt dynamics.

Moody's noted that Malaysia's sovereign rating was supported by the Government's favourable debt structure, the depth of onshore capital markets and the high level of domestic savings.

These factors mitigated the effects of wider fiscal deficits and a higher stock of debt as compared to its A-rated peers.

Moody's also pointed out that when compared to these same countries, Malaysia had generally exhibited faster growth, lower inflation and a more robust balance of payments over the past five years.

Since the first quarter of 2012, real gross domestic product growth in Malaysia has averaged 5.1% year-on-year, outperforming other A-rated economies, despite falling commodity prices and relatively lacklustre external demand.

Moody's further noted that Malaysia's economic resilience had been accompanied by price stability, anchored by the credibility of its central bank.

Malaysia's balance of payments remains healthy, despite a narrowing of its current account surplus over the past two years, continued large outward direct investments by Malaysian corporates and banks, and volatile portfolio flows.

Malaysia's foreign exchange reserves have come off from recent highs earlier in the year, and stood at US$137.1bil (RM425bil) as of end-October, but continue to act as a formidable buffer against destabilising capital outflows in the event of an external financial shock, such as the anticipated tapering by the US Federal Reserve of its quantitative easing policy.

"A direct positive consequence of the improving trend in the credit quality of Malaysia is the strengthened capacity of the Government to provide support to the bank in times of stress.

"At the same time, the banking sector's own strength and stable outlook are also beneficial to the sovereign in that they make the contingent liability of banking system support a remote risk," said Moody's.

Moody's cautioned that high household debt, combined with a pronounced appreciation in housing prices, represented potential vulnerabilities to the banking system that could adversely affect overall economic conditions.

In addition, constraints to Malaysia's creditworthiness included limited transparency in relation to the scale of non-financial public sector indebtedness and the increasing use of off-budget financing vehicles.

Bernama quoated Moody's vice-president of Sovereign Risk Group, Christian de Guzman as saying the new electricity tariff structure announced on Monday showed that the Government was on track to implement fiscal reforms.       

"The hike would have a one-off impact on inflation but it will run off," he told a press conference yesterday.

He said that having too many heavy subsidies might not be good for inflation, as countries such as China, Indonesia and India, where utilities and petrol prices were low, experienced highly volatile consumer price indices.

Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili announced on Monday that electricity rates would go up 14.98% or 4.99 sen to 38.53 sen per kilowatt-hour, effective Jan 1. The new tariff structure coincided with the fuel price increase in September and the budget announcement of the goods and services tax to be implemented in April 2015, which was evidence of Malaysia's commitment to implement fiscal reforms, he added.

KLCI steadies, propped up Tenaga


KUALA LUMPUR: The FBM KLCI held steady early Wednesday, underpinned by gains in heavyweight Tenaga Nasional, after opening down more than four points.

At 9.33am, it was down 0.02 of a point to 1,824.27, staging a recovery from the weak opening of 1,819. Turnover was 104.59 million shares valued at RM74.35mil. There were 125 gainers, 169 losers and 190 counters unchanged.

Hwang DBS Vickers Research said in its market outlook the KLCI could take a breather on Wednesday while on the chart, the index might trade around its resistance line of 1,825 for now.

"In essence, investors are still cautious on the sustainability of the current market breakout judging by yesterday's underlying performance, which saw Tenaga alone contributing to a 9.3-index point increase vis-à-vis an overall 6.1-index point hike," it said.

Public Bank foreign fell the most, down 48 sen to RM18.40 with 1,600 shares done. FGV shed 11 sen to RM4.48 and PPB Group 10 sen to RM15.

Allianz-PA fell 20 sen to RM10.30, UMW and BAT 12 sen lower at RM12.38 and RM62.88 while Tan Chong lost 11 sen to RM6.29.

However, Tenaga bucked the trend, adding 24 sen to RM10.96 as investors were positive about its earnings following the tariffs hike which comes into effect on Jan 1, 2014.

Tiong Nam Logistics warrants, WR jumped 19 sen to 19.5 sen when it was listed following a corporate exercise. Condom maker Karex added 12 sen to RM3.66.

Fed's Williams: Cutting rate on banks' reserves 'would make sense'


SAN FRANCISCO: The Federal Reserve has more reason than ever to cut a key U.S. lending rate it has kept at just above zero since the depths of the financial crisis, a top Fed policymaker suggested on Tuesday.

The Fed set the interest rate it pays banks on their excess reserves at 0.25 percent when it introduced it in 2008, and it has sat there ever since.

Investors have lately been abuzz with speculation that the Fed could cut that rate as a way to signal its seriousness about keeping interest rates low even after it reduces its $85 billion-a-month bond-buying stimulus program.

"As everybody says, it's not going to be a game changer, but given that we're doing a lot of unconventional policy and pushing hard, I think it would make sense," San Francisco Federal Reserve Bank President John Williams told Reuters in an interview. "If you can get the funds rate trading a little lower and bring down interest rates a little lower, that's a positive."

Williams is a strong supporter of the Fed's bond-buying program. On Tuesday, he said he believes that the Fed needs to do more to prove it is committed to keeping short-term rates low as long as needed to support the recovery.

Most importantly, he said, the Fed should give better guidance on what would induce it to raise rates once the U.S. unemployment rate falls to 6.5 percent, the level at which the Fed said has said it would consider an interest-rate hike.

Williams participates in the meetings of the policymaking Federal Open Market Committee, but he will not become a voting member of the FOMC until 2015.

The rate the Fed paid on excess reserves is distinct from the Fed's main policy rate, which it has kept at between zero and 0.25 percent for nearly five years.

But reducing that rate could force more money into the broader financial system in the form of loans to stimulate investment, hiring and economic growth. Banks keep about $2.5 trillion in excess reserves.

"Most participants" at the Fed's latest policy-setting meeting thought lowering the rate was "worth considering at some stage," according to minutes of the meeting released last month.

Critics worry whether money markets can still function if rates fall to zero; indeed, over the years, the Fed has considered and rejected the idea of reducing the rate in part because of that very concern.

But a new central bank tool blunts that risk, Williams said on Tuesday.

Known as a fixed-rate full-allotment reverse repo facility, the tool has been touted as a way to mop up excess cash in the financial system once the Fed needs to start raising rates. [ID: nL2N0JH20N]

But it could also be helpful should the Fed decide to lower the rate it pays to banks, Williams said.

"We do have this ability through this reverse repo that's been tested by the New York Fed that basically makes sure we can control short-term interest rates even if we ... lowered the interest on reserves closer to zero," Williams said.

Still, Williams did not suggest the idea is necessarily on the Fed's front burner.

"On the margin, I thought the pros slightly outweigh the cons," he said. "Obviously, that's not what we are doing. It's been an issue we've discussed several times over the years. It's always been part of that mix: 'How do you weigh the costs and benefits?" - Reuters


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