RAM: Enough reserves to cushion

outflow of hot money

Thursday, 22 January 2015
By: CECILIA KOK

BANGI: Malaysia has enough reserves to counter any transitionary impact from the
outflow of hot money from its capital markets, according to a ratings agency.
The US$118bil international reserves are an important safeguard to capital flows
and the ringgit, said RAM Holdings Bhd chief executive officer and executive
director Datuk Seri Dr K. Govindan.
The ratings agency has reaffirmed Malaysias sovereign rating at A2 (PI) with a
stable outlook, based on the countrys strong economic fundamentals and a
strong banking sector.
The country continues to record steady growth averaging 5% in the midst of an
otherwise uncertain and volatile global economic environment, he said at the
signing of a memorandum of understanding (MoU) between RAM Holdings and
Universiti Kebangsaan Malaysia here yesterday.
Govindan said that RAM Holdings viewed the revised growth rate of 4.5% to 5.5%
for Malaysia as realistic and appropriate, given the current global economic
uncertainties led by falling crude oil prices.
He pointed out that the recent capital outflows from Malaysia that had resulted in
the weakening of the ringgit were basically transitional, as foreign investors react to
possible changes in the monetary policy of the United States.
Overall, our economic fundamentals are still strong and we agree with the
Governments view that Malaysia is not in a crisis, he said.

Meanwhile, RAM Rating Services Bhd expects crude oil prices to rebound to an
average of around US$60 (RM217) to US$65 per barrel this year.
This is higher than the Governments adjusted average price assumption of US$55 a
barrel.
We do not expect oil prices to stay low for so long we expect the prices to
eventually rebound back to average at US$60-US$65 per barrel this year, RAM
Rating CEO Foo Su Yin said.
At this point, theres a lot of volatility, but going forward we expect oil prices to
stabilise it is a question of when, she said at the event.
The oversupply of crude oil in the international market amid weak demand has
resulted in the steep plunge of global crude oil prices by more than 50% in the last
six months. The international benchmark Brent crude, for instance, was traded at
around US$48 per barrel yesterday, compared with US$115 per barrel in mid-June
2014.
Foo explained that the supply of crude oil would naturally be reduced, as many
producers, especially that of US shale, would be eliminated by the current low-price
environment that has made it non-commercially viable for them.
The plunging price of crude oil has already forced the Government to revise the
Budget 2015.
Govindan stressed that although Malaysias 2015 fiscal deficit-to-gross domestic
product ratio had been adjusted slightly upwards, the revised target was still an
improvement from the estimated 3.5% in 2014, and that reflected the
Governments continued commitment to rein in its deficit.
It should be noted that the cut was on operating expenditure. Maintaining the
same level of development expenditure mostly for infrastructure projects will
support private sector capital formation and strengthen productive capacity,
Govindan said.

RAM recognises that forecasting growth prospects needs a cautious approach due
to continued uncertainties over oil price movements and shifts in US monetary
policy, especially in the timing of the rise in US benchmark interest rates. Hence, the
Governments commitment to continuously monitor global economic
developments and its impact on the Malaysian economy is, therefore, a prudent
move, he added.