Sunday , July 25 2021

Markets have lost confidence in rating agencies, says an economist

The downgrade of Fitch Ratings means that it will become more expensive to borrow Malaysia. (Picture by Reuters)

KUALA LUMPUR: Two economists have expressed differing views on the latest revision of the Fitch Ratings of Malaysia’s sovereign rating, with one expressing disappointment and the other saying it is expected but may change over time.

Wuai chief economist IQI Shan Said has complained to Malaysia’s sovereign rating agency, saying markets had lost confidence in rating agencies since 2010.

“Their reports and views are behind the curve. “They came up with banal analyzes that are not harmful to the market,” he told Bernama.

He said that the markets are looking for macroeconomic stability, levers of fiscal and monetary policy to maneuver and stimulate growth and, above all, aggregate demand that takes into account gross domestic product (GDP) for all economies.

Last Friday, Fitch announced the downgrade of Malaysia’s sovereign rating from A to BBB +, with an improved outlook from negative to stable.

The downgrade means it will become more expensive to borrow Malaysia, which in turn has a fiscal impact.

Regarding the agency’s concerns about the domestic political situation, Shan said the ringgit appreciated 8.55% from March 23, price inflation was below 1.5% and the budget deficit was still below the one-digit threshold despite the change. to the government.

Furthermore, the debt-to-GDP ratio is around 60% and aggregate demand is increasing in a very structured way.

He said the real estate market was still booming, with luxury car sales rising between 3-5% quarter-on-quarter, while demand for energy, especially liquefied natural gas (LPG), came from Asia. Malaysia is the third largest exporter of LNG in the world.

“The Malaysian government is trying its best to focus on people-centered policies and a growth-driven economic strategy,” he said.

Meanwhile, Bank of Islam Malaysia chief economist Mohd Afzaniz Abdul Rashid said the announcement was not at all surprising given the huge size of the incentive package.

Rating agencies deal with lending, which tends to change when there is new information and development, he said, adding that it now needs to focus on ensuring that the economic recovery process continues.

“If we do it right, the sovereign rating can be upgraded at some point in the future,” he said.

He said the proceeds of the ringgit and Malaysian government securities were likely to react tomorrow after the audit.

However, Malaysia has large domestic institutional assets, such as the Employee Insurance Fund and the Retirement Fund, banking institutions, insurance companies, Bank Negara Malaysia and asset managers, which can act as shock absorbers of a possible sale, he said.

At the time of Fitch’s review, Afzanism said it was entirely at its own discretion because Fitch signaled it back in April when it revised its rating outlook from “stable” to “negative”.

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