Headline inflation to remain in negative territory
KUALA LUMPUR: Malaysia’s headline inflation is expected to remain in the negative territory at least until March, analysts opine, due to the Movement Control Order (MCO) measures and the continuation of rebates of electricity bills until the second half of 2021 (2H21).
As per the Department of Statistics Malaysia’s (DOSM) latest press release on consumer price index (CPI), CPI declined 1.4 per cent in December 2020 to 120.6 as against 122.3 in the same month of the preceding year.
“The CPI for the year 2020 registered a decrease of 1.2 per cent as compared to last year,” the statement also revealed.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Malaysia posted a full-year deflation for the first time in 51 years amid the Covid-19-induced economic downturn that weighed heavily on domestic demand.
Kenanga Research gathered that the deflation was also attributable to government’s Covid-19 measures, weak energy prices and electricity bill discounts.
“The renewed MCO restrictions in all the states except for Sarawak is expected to once again strap the economy in a straitjacket, albeit looser than the one we saw in March 2020,” the research arm said.
“Due to the MCO measures and the continuation of rebates of electricity bills until 2H21, headline inflation is expected to remain in the negative territory at least until March.”
However, the research arm expected a rebound to a positive growth from the second quarter of 2021 (2Q21) onwards on the back of the anticipated vaccine-driven recovery and low base effect.
On another note, Kenanga Research highlighted that after a total of 125 basis point cut in 2020, the Bank Negara Malaysia (BNM) has held the overnight policy rate (OPR) steady at 1.75 per cent since July 2020 despite muted inflationary pressures and worsening domestic Covid19 situation.
With the expectation that growth would be further pared down in the 1Q21, to -2.2 per cent, the research arm continued to believe there is still room for BNM to cut the OPR by another 25 basis points.