Malaysia committed to fiscal consolidation, says ANZ

KUALA LUMPUR - The Malaysian Government underlined its commitment to fiscal consolidation when it unveiled its 2017 Budget last week, according to an assessment by ANZ Bank. It says cutbacks to spending for this year were outlined to keep the fiscal deficit at 3.1% of GDP in 2016, with a slight improvement to 3.0% in 2017 forecast.

“This display of fiscal discipline puts Malaysia’s sovereign credit rating of A- (stable outlook) on a firm footing, particularly with the diversification of its revenue base away from oil,” ANZ says.
“The Government’s GDP growth forecast range of 4.0-4.5% in 2016 and 4.0-5.0% in 2017 is in line with our own forecasts.”
ANZ says that, given the Budget is supportive of private consumption, it expects Bank Negara Malaysia to leave its overnight policy rate unchanged at 3.00% at its final meeting of the year on November 23.
“The risk is still tilted towards another rate cut, in our view,” ANZ says. “But this will only be triggered if there are signs of a significant slowdown in domestic demand.
It adds: “The ringgit has underperformed our expectations.  MYR’s weakness is notable in light of the rebound in oil prices. Despite our expectation that oil prices will stay above USD50/bbl, the near-term outlook for the MYR remains challenging.
“The narrowing in the current account surplus provides less support for the ringgit. US monetary policy normalisation and a steeper yield curve in the major developed markets will result in more volatile capital flows.
“For now, we maintain our year-end USD/MYR forecast at 4.15, as we look for some near-term retracement. But the risk is clearly tilted towards further ringgit weakness.”  www.live.anz.com (ATI).