There is no ‘privacy’ justfication in instances like these because it is clear and public who it is that is being refused a visa. In the past the Australian Govt has sometimes commented on such cases, like when David Irving (the holocaust denying ‘historian’) was denied a visa, or when the same occured to Gerry Adams, the Irish Sinn Fein MP. (Adams was subsequently allowed to visit sometime later). Both times it was made clear why the visa was being refused.

The Australian Govt is just using the ‘refuse to comment’ argument to avoid having to answer questions as to why they are doing this.

The most likely reason is, as you suggest, to kowtow to the Malaysian Government and send a signal that it is not going to worry about human rights abuses (something that has already been demonstrated with the friendly embracing of the Sri Lankan government).

Another plausible reason is that the Australian Govt was worried Harim Ibrahim might seek asylum once he was in Australia, using the politically motivated sedition charges as his justification. This would have put the Australian Govt in an awkward diplomatic position, so they may be trying to preepmt that.

Of course it could easily be for both reasons.