FX Research – RM and Revised 2015 Budget

Good Morning!

v Fiscal deficit target is being revised to 3.2% of GDP from 3.0% of GDP, otherwise it could be at 3.9% of GDP if without government intervention. These revised forecasts were based on baseline oil price of US$55/barrel against original estimates of US$100/barrel. Likewise, real GDP was revised to 4.5-5.5% against 5.0-6.0% earlier.

v PM Najib said that Malaysia is in fact a net oil importer, against the widely believed notion that Malaysia is a net oil exporter – a fact that we have been consistently highlighting to clients since early 3Q14.

v We think it is too premature for rating agencies to change their ratings solely based on this announcement. What likely matters to these rating agencies are commitments to path of fiscal consolidation, risk of shifting towards off-budget financing and of keeping current account surplus.

v  We think this announcement will have a neutral impact on Ringgit Malaysia and the currency is in oversold position. Weak market sentiment will prevail and likely than not secular strengthening of US dollar will have greater influence over the currency.