Malaysia’s inflation to stay modest, low possibility of another rate hike

KOTA KINABALU: Malaysia’s inflation is expected by analysts to stay modest going forward while the current 3.25 per cent overnight policy rate (OPR) has been projected to remain throughout 2018.

According to Am Investment Bank Bhd (Am Investment Bank), headline inflation in May of 1.8 per cent year on year (y-o-y) fell in line with expectations and was marginally above its estimation of 1.7 per cent y-o-y.

“Moving forward, we expect inflation to stay modest despite some upwards pressure coming from demand on the back of the Hari Raya festive season.

“The upside will be limited with a stable pump price added with no goods and services tax (GST) that will be replaced with the sales and services tax (SST) from September.

“This should help improve the

Moving forward, we expect inflation to stay modest despite some upwards pressure coming from demand on the back of the Hari Raya festive season. Am Investment Bank

disposable income,” the research firm said.

On the cost side, Am Investment Bank saw limited upwards pressure following a more stable ringgit outlook against the US dollar.

The research firm expected the ringgit to hover around 3.98 to 4.04 in June.

“Besides, with fuel subsidy in place, it should help contain upwards pressure.

“We expect some impact from the base issue.”

As for the OPR, Am Investment Bank expected it to remain at the current 3.25 per cent throughout 2018.

“We feel there is no real urgency for Bank Negara to raise rates given that the economy is sitting in a comfortable positive real returns, the ringgit is still stronger against the US dollar when compared to regional currencies versus the US dollar and no real demand pull inflationary pressure despite an uptick in consumer spending with fuel subsidies, removal of the GST that will be replaced with the SST, and better confidence.”

Overall, Am Investment Bank maintained its 2018 inflation projection at two per cent to 2.5 per cent.