KUALA LUMPUR — The monetary management by Bank Negara Malaysia is effective and has ensured adequate levels of liquidity, banking stability and low inflation, said Moody’s Investors Service.
It said the overall price stability has facilitated a high savings rate, contributing to the deepening and diversification of local capital markets.
“The central bank’s track record of monetary management has anchored inflation expectations, in turn leading to lower financing costs for the government.
“Over the last 10 years, Malaysia has exhibited among the lowest levels of inflation in our rated universe but price pressures increased over the past year as a paring back in subsidies pushed up fuel and utilities costs.
“Inflation averaged 3.3 per cent year-on-year through the first seven months of 2014.
“Moody’s regards Malaysia as having developed the most advanced regulatory, accounting, and market infrastructure for Islamic finance, as reflected in its position as the world’s largest sukuk market,” the credit rating agency said in its report “Credit Analysis on Malaysia” released Wednesday.
As the economy effectively rebalances towards more domestic sources of demand and away from its reliance on exports, Malaysia’s large current account surplus has narrowed considerably, at 4.0 per cent of gross domestic product (GDP) in 2013, down from an average of over 13 per cent in the previous 10 years, it said.
Given its role in Asia’s cross-border production network, Malaysia’s export growth is correlated with import growth due to the relatively high import content of the country’s manufactured exports, it said.
Malaysian banks and corporates are among the most active investors in the region, as illustrated by relatively large negative foreign direct investment figures in recent years.
The central bank’s official reserve assets declined slightly to US$132.0 billion in August 2014 from US$134.9 billion at end-2013 and US$139.7 billion at end-2012, said Moody’s.
This large reserve buffer, along with the current account surplus, renders Malaysia less susceptible to volatile capital flows than many of its Asian neighbours, it said.
Moody’s said Malaysia’s financial system continues to provide sound institutional and liquidity support, while its capital structure and funding base pose very low contingent risk to the sovereign.
However, it said the most prominent risk to the financial stability appears to be the rise in household indebtedness, which stood at 86.8 per cent of GDP at end-2013, higher than other developing countries in the region.
Originally published on www.bernama.com