According to Moody’s Investors Service, the country’s monetary policy is sound in managing adequate levels of liquidity, banking stability and low inflation.
With a large domestic institutional investor base and net foreign assets, Malaysia provided ample buffer against financial shocks, said the rating agency.
“Headline inflation averaged 2.6% over the past decade, lower than similarly rated peers,” Moody’s said in a statement.
Even with close to 40% of the country’s price basket subject to administrative controls, inflation was still more stable compared to other countries who have similar subsidy framework, such as India, Indonesia and Qatar.
“Over the last 10 years, Malaysia demonstrated one of the lowest levels of inflation among the sovereign that we rate, and this situation has helped anchor domestic interest rates,” the statement said.
In 2015, Moody’s said inflation in Malaysia was kept under control at 2.1%, despite price pressures due to the Goods and Services Tax (GST) and also the depreciation of exchange rate.
The policy adopted by the Malaysian government also showed high credibility and effectiveness in their commitment to fiscal consolidation. Malaysia’s fiscal deficit has declined for the sixth consecutive year to 3.2% of Gross Domestic Product (GDP) in 2015, said the agency.
“While reforms have not fully offset pressures from lower oil prices, the fiscal account are now in better shape to withstand oil price volatility,” it said.
The country’s effective regulatory and markets governance couples with significant long-term institutional savings, has also enabled Malaysia to become the third largest local currency bond market in Asia, after Japan and Korea.
“As the world’s largest sukuk market, we regard Malaysia as having the most advanced regulatory, accounting and market infrastructure for Islamic finance,” it said.
The authorities have also loosen exchange rate controls and allowed greater financial openness due to the country’s stable monetary environment and deep capital markets. This promoted outward foreign direct and portfolio investment by Malaysian firms and residents in recent years.
“Malaysia’s greater financial openness has also led to increasingly large non-resident capital flows.
“As a result, Malaysia’s overall international investment position which shifted to a deficit in 2012, has reverted to a surplus in mid-2015, driven in part by equity outflows and an increase in the value of Malaysia’s direct investments abroad,” Moody’s said.
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