Malaysia’s sovereign risk profile compares poorly to rating peers on the fiscal side. Accelerated by the drop in oil price and weakening ringgit. Being an oil exporting country, it has to absorb a large terms-of-trade shock and face greater fiscal and external vulnerabilities.
Further hike in OPR is expected in 2H2015, probably after the implementation of goods and services tax (GST) in April. Statistically speaking, housing credit has remained pretty stagnant over the last few years, whereas personal loan and vehicle loan are on the rise. I think such unhealthy situation like this wont warrant the central bank to further increase the interest rate this year. Furthermore with the recent implementation of GST, which would normally gives a profound impact to the economy especially within its few months of implementation.
The increase in government’s development expenditure (as announced in the budget 2015) is expected to boost GDP in 2015 due to development expenditure has a higher multiplier impact on the economy relative to government’s operating expenditure.
One thing for sure, 2015 aint going to be a good year for the economy. Say on the currency front, there are analysts who predict that the ringgit might go down to 3.80/dollar level by year end. That is quite a scary possibility. Last week we could see there had been a slight increase for ringgit, 3.62/dollar, but that was expected due to the issuance of the dual tranche $1.5bil sukuk wakalah. By next week the rate could go back down again, we shall see.