BNM expects prices of goods and services to decline after GST reduction

KUALA LUMPUR: Bank Negara Malaysia ( BNM) expects the price of goods and services to decline following the new government ‘s announcement to reduce the Goods and Services Tax to zero per cent on June 1, 2018.

Governor Tan Sri Muhammad Ibrahim said it was important for the relevant authorities to ensure that businesses pass the benefit to the public at large.

“Most likely than not it will have an impact on the inflation but it is too early for us to calculate (the inflation rate) right now.

“The inflation rate for the first quarter is set at between two and three per cent, but with the information coming in, we will look at it again.

“If need be, we will revise the rate,” he reporters after announcing the first-quarter Gross Domestic Product (GDP) figures yesterday.

As for the monetary policy, he said BNM would always look at the inflation rate based on its substantiality.

On the monetary policy impact on GDP, he said BNM would wait for the initiatives which are being discussed by the Team of Eminent Persons to assess whether there is a need to change the forecast of 5.6 per cent to six per cent this year and would announce it together with the Ministry of Finance.

Muhammad said the central bank would also assess the sources of stress on fiscal deficit and the implications of various initiatives after they were announced and would adjust the monetary policy accordingly.

“As far as the monetary policy is concerned, it would always be accommodative to growth trajectory and price stability and would not ignore the fiscal side,” he said.

He noted that the ringgit remained stable despite the recent change in government, and moving forward, it was expected to continue reflecting the economic fundamentals.

“There will be a lot of noises in the short term that would affect the ringgit but in medium and long term, the ringgit would adjust to reflect the economic fundamentals,” he added.

BNM however would provide the necessary liquidity to the market if there is a spike in the currency market.

The whole purpose of intervention, he said, was to make sure the market would adjust to the market in a smooth manner.

The ringgit had moved to below RM4 against US dollar from above RM4 a year ago, showing it was tracking the economic fundamentals, he said.

“This showed our economic fundamentals remained intact and would remain so moving forward,” he added. — Bernama