Malaysia not ‘as concerned’ about capital outflows as Fed sets to taper, finance minister says

08-Dec-2021 Intellasia | CNBC | 5:02 AM Print This Post

Malaysia is not “as concerned” about investors pulling out of the country in a big way when the US Federal Reserve starts winding down its asset purchases, the Malaysian finance minister told CNBC on Monday.

Tengku Zafrul Aziz, the finance minister, said Malaysia’s financial markets are “insulated” as the country has raised most of its debt locally. The government increased its statutory debt ceiling from 60 percent to 65 percent of gross domestic product to fund its Covid-related fiscal packages.

“If you look at our borrowing exposure, 98 percent is actually ringgit-denominated,” Zafrul told CNBC’s “Squawk Box Asia,” referring to the Malaysian currency.

“So we’re not as concerned,” he added. “But having said that, of course there will be some effect as markets react accordingly in the US”

The Southeast Asian country was among those that suffered a “taper tantrum” in 2013, when US Treasury yields surged after the Fed said it would taper its quantitative easing programme.

That led to sharp money outflows from many emerging markets weakening their currencies and forcing their central banks to hike interest rates to protect their capital accounts.

This time, the Fed is set to start tapering at a time when global debt has risen after governments increased spending to cushion the economic hit from the Covid-19 pandemic. That could leave some countries vulnerable, especially those that borrowed in US dollars.

Analysts have said that many emerging markets, particularly those in Asia, have better economic conditions that would allow them to better withstand rising US yields.

The Malaysian economy is on track to grow by 3 percent to 4 percent this year, said Zafrul. But next year’s growth prospects would depend on whether the country could continue to open up, given the threat of the Covid omicron variant, the minister added.

“I’m quite optimistic that we are able to do what’s needed to be done,” said Zafrul. “Having said that, you never know right? So let’s prepare for the worst but at the same time, do not panic.”


Category: Malaysia

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