No sign of panic capital flight from Malaysia

by **Cals** Mon 17 Feb 2014, 18:44

Business & Markets 2014

Written by Fatin Rasyiqah Mustaza of theedgemalaysia.com

Monday, 17 February 2014 10:18

KUALA LUMPUR: There is no indication of panic capital flight from Malaysia, said Hanifah Hashim, head of Malaysia fixed income and sukuk at Franklin Templeton Investments.
She added that the current volatility in emerging markets is a broad-based market correction where select countries with better fundamentals are aggregated together.
“Talk of a repeat of the Asian financial crisis is exaggerated. In my view, there is no indication of panic capital flight from Malaysia as we are in a much better shape today compared with 1998,” she said in a report last Friday.
Hanifah pointed to the country’s international reserves, which fell to US$133.1 billion (RM440 billion) as at Jan 30 from US$135 billion as at Jan 15. She said the reduction of US$1.9 billion only accounted for 1.4% of the total foreign reserves, which is a small amount compared with the 2008 global financial crisis, when Malaysia’s international reserves declined to about US$40 billion.
“Furthermore, Malaysia’s non-ringgit debt was RM16.9 billion in the third quarter of 2013, which is less than 5% of its total debt. With the nation’s low level of external debt, we are very unlikely to succumb to the volatile exchange rate compared with 17 years ago. In addition, our foreign reserves are now three times larger than in 1998, and our current account is still a surplus,” she added.
Hanifah expects Bank Negara Malaysia (BNM) to leave its key interest rate unchanged at 3% — at least until later this year — as the recent rise in inflation rate is a cost-push and not demand-pull factor.
“The thinking would be for BNM to focus on getting our economic growth on a firmer footing before adjusting the interest rate further, as any increase of the overnight policy rate will dampen domestic demand. However, if the inflation rate breaches 3.5% for a few consecutive quarters, we may then see a 25-basis-point hike in the fourth quarter of 2014,” she said.