Sources: yahoo finance

KUALA LUMPUR (Dec 17): Fitch Ratings has affirmed Malaysia’s long-term foreign-currency issuer default rating (IDR) at BBB+ with a stable outlook, according to a statement on Monday.

“Malaysia’s ratings are supported by strong and broad-based medium-term growth, driven by robust domestic and foreign investments, and persistent current account surpluses with a diversified export base. 

“These strengths are balanced against high public debt, a low revenue base relative to current expenditure, and weaker external liquidity relative to peers,” it said.

Fitch Rating expects Malaysia’s economy to expand by 5.2% in 2024, then slow to 4.5% in 2025, and 4.3% in 2026. 

The rating agency said steady labour market conditions and an income boost from pay hikes for civil servants in December 2024 and January 2026 should support household spending.

This, coupled with growth, further underpinned by investments from government-linked companies and foreign investment related to supply-chain diversification.

“However, while Malaysia’s export performance has benefitted from the global tech upcycle in 2024, we expect momentum to slow in 2025 due to weaker external demand. Growth prospects also face downside risks from an escalation in geopolitical tensions,” it added.

Greater political stability, fiscal deficit narrowing

Fitch noted that Malaysia’s policy uncertainty has eased with a more stable ruling coalition formed in 2022, backed by a two-thirds parliamentary majority and an anti-hopping law preventing party switching. 

This administration, it noted, has passed the Public Finance and Fiscal Responsibility Act 2023 (PFFRA), and is working on strengthening state-owned enterprise governance and the National Anti-Corruption Strategy 2024-2028. 

“While improved policy certainty boosts investment, we believe coalition dynamics and diverse coalition partner interests still appear to constrain faster fiscal consolidation and tax reform,” it added.

The 2025 budget projects the federal government deficit to narrow to 3.8% of gross domestic product (GDP), from its estimated 4.3% in 2024. 

“We expect 2025 federal government revenue/GDP to remain steady, from our 2024 estimate of 16.5%.”

New budget measures, including a tax on individual dividend income and enhanced sales and service tax, will bring limited additional revenue.

However, it said, this will be partly offset by lower petroleum-related revenue (18% of total revenue projected for 2025), given Fitch’s assumption that the Brent oil price will average US$70/bbl(barrel), against our estimate of US$80/bbl in 2024.

Meanwhile, Fitch also noted that the national oil company, Petroliam Nasional Bhd (Petronas) (BBB+/stable), is negotiating with state-owned Petroleum Sarawak Bhd over control of the natural gas distribution business in the state of Sarawak. 

“Final arrangements are pending and could affect Petronas’ profitability and capacity to contribute to federal government revenue, including paying dividend, which will add around 1.5% of GDP in 2025.”

Meanwhile, the government aims to extend subsidy rationalisation to RON95 petroleum, education and healthcare, following savings from cutting electricity subsidies and targeting diesel subsidies.

“This will reduce spending on subsidies, but a large share of the savings will be channelled to additional spending, including increased social assistance for lower-income groups,” it added.

The government is also undertaking a review on civil service remuneration, including pay hikes in December 2024 and January 2026.

“We forecast the federal government deficit to decline to 3.5% of GDP in 2026, driven by continued subsidy rationalisation and modest tax increases. The government aims to reduce the deficit to below 3% in the medium term, as outlined by the PFFRA. We view this as a credible, gradual fiscal consolidation path.”

Source: Theedgemarkets

The Indian Rupee (INR) consolidates in a narrow trading range on Tuesday after weakening to a new closing low in the previous session. A rise in US Treasury bond yields and weakness in the Chinese Yuan exert some selling pressure on the local currency. Furthermore, the widening of India’s merchandise trade deficit in November further weighs on the INR. Any significant depreciation of the Indian Rupee might be limited as the Reserve Bank of India (RBI) will likely sell the USD via state-owned banks to avoid excess volatility. The US November Retail Sales is due later on Tuesday. All eyes will be on the US Federal Reserve (Fed) interest rate decision on Wednesday for fresh catalysts. Also, the Fed Chair Jerome Powell’s press conference and the updated economic projections will be closely monitored. 

Indian Rupee holds steady on the back of global cues

The Indian WPI inflation eased to a three-month low of 1.89% in November from 2.36% in October, the Ministry of Commerce and Industry showed on Monday. This figure came in softer than the expectation of 2.2%.

The preliminary estimate released by HSBC showed on Monday that the India Manufacturing Purchasing Managers Index (PMI) rose to 57.4 in December versus 56.5 prior. 

The Indian Services PMI climbed to 60.8 in December from 58.4 prior. The Composite PMI jumped to 60.7 during the same report period from 58.6 in November.

"The small rise in the headline manufacturing PMI in December was mainly driven by gains in current production, new orders, and employment," said Ines Lam, economist at HSBC. 

The US S&P Global Composite PMI improved to 56.6 in December’s flash estimate versus 54.9 prior. Meanwhile, the Services PMI increased to 58.5 in December’s flash estimate from 56.1. The Manufacturing PMI eased to 48.3 from 49.7. 

USD/INR keeps the bullish vibe in the longer term

The Indian Rupee trades flat on the day. The constructive view of the USD/INR pair prevails, with the price holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) is located above the midline near 68.35, supporting the buyers in the near term. The ascending trend channel and the psychological level of 85.00 appear to be a tough nut to crack for bulls. Sustained bullish momentum could even take USD/INR to 85.50. On the other hand, the first downside target to watch is the lower boundary of the trend channel of 84.80. A breach of this level could expose 84.22, the low of November 25. The potential support level for the pair is seen at 84.13, the 100-day EMA.

Indian Rupee FAQs

What are the key factors driving the Indian Rupee?

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.

How do the decisions of the Reserve Bank of India impact the Indian Rupee?

The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.

What macroeconomic factors influence the value of the Indian Rupee?

Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.

How does inflation impact the Indian Rupee?

Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.

Source: FXSTREET

SAO PAULO/BRASILIA (Dec 16): Market anxiety dragged Brazil's real currency to a historic low on Monday, as significant central bank interventions again failed to counter market concerns over government spending.

The real closed at 6.09 per US dollar, with a year-to-date depreciation shaving off a fifth of its value, making it one of the worst performers among emerging market currencies.

Interest rate futures continued to rise, with bets that the central bank will hike its key borrowing rate again in January, likely by 125 basis points (bps), instead of 100 bps under its recent guidance.

The real opened sharply lower against the US dollar, as President Luiz Inacio Lula da Silva renewed criticism of what he sees as unreasonably high borrowing costs. The currency briefly pared losses after central bank interventions, before resuming its downward spiral.

In an interview with major television broadcaster Globo, aired late Sunday, the leftist leader dubbed the rate hikes "irresponsible" and said his government would "take care of that," hinting at potential policy changes ahead.

Next year, the central bank's rate-setting board will have a majority of members chosen by Lula, as the president is commonly known, including his pick for governor.

The Brazilian currency's steep decline was triggered last month by market disappointment over a much-anticipated government spending cut package.

Congress has yet to vote on the package a week before a scheduled recess. Even so, Finance Minister Fernando Haddad expressed optimism on Monday that approval for the package can be secured within this time frame.

Earlier in the day, the central bank announced a spot dollar auction that sold US$1.63 billion (RM7.25 billion), a move it had also deployed on Friday. The bank also sold the full US$3 billion in an auction, with repurchase agreements that it had announced on Friday.

Despite the efforts to boost the real, market sentiment remained sour after the central bank's rate hike earlier this month to bring the benchmark rate to 12.25%, while it signalled matching moves for the next two meetings.

"The only thing wrong in this country is the interest rate being above 12%. There's no explanation," said Lula, who was discharged from hospital on Sunday morning, following emergency surgeries to treat and prevent bleeding in his head.

Lula argued that inflation of around 4% is "fully controlled".

The central bank's hawkish move this month cited the market's negative reception of the fiscal package as a factor likely to pressure prices upward, with inflation expectations already drifting away from the bank's 3% target, plus or minus 1.5 percentage points.

A weekly bank survey of private economists released on Monday continued to point to higher inflation expectations moving into next year. Economists surveyed see the interest rate peaking at 14.25% in March.

Brazil's 12-month inflation ended November at 4.87%.

Lula has repeatedly criticised what he sees as excessively high interest rates, often slamming outgoing central bank governor Roberto Campos Neto. The president has tapped Gabriel Galipolo to replace him.

Next year, Lula's appointees will hold a 7-2 majority on the bank's nine-member rate-setting committee, up from the current 4-5 minority.

Uploaded by Liza Shireen Koshy

Source: Theedgemarkets

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