Malaysia seen pausing rate through 2024 as inflation risks fade

MALAYSIA’S lower-than-expected consumer prices in July have prompted more analysts to downgrade their inflation forecasts for the year, giving the central bank space to continue supporting economic growth.

Analysts at Maybank Investment Bank Bhd. and RHB Bank Bhd. trimmed their annual inflation projections for Malaysia to 2 per cent and 2.1 per cent, respectively, from 2.4 per cent and 2.6 per cent, after consumer prices undershot estimates for the second straight month. They joined United Overseas Bank and Kenanga Investment Bank Bhd., who lowered their forecasts last month.

Higher diesel prices since June have had a muted impact on inflation, largely owing to government intervention measures. That will allow Bank Negara Malaysia to keep the benchmark interest rate at 3 per cent for the rest of the year, RHB economist Chin Yee Sian wrote in a note on Thursday. 

The central bank maintained its full-year inflation forecast range at 2 to 3.5 per cent, though it noted that consumer prices are unlikely to exceed 3 per cent in 2024, barring shocks. Its next meeting to decide on interest rates will be in September.

Going forward, the trajectory of inflation will hinge on the timing of RON95 subsidy reforms, potential demand upsides from partial pension fund withdrawals and spill-over impact from higher global commodity and food prices, said RHB’s Chin. A planned increase in civil servant salaries could also raise demand-pull inflation pressure, she added. 

Analysts at Maybank expect the government to only implement subsidy rationalisation for the country’s cheapest and most commonly used petrol next year. Given the uncertainty in timing, quantum and mechanics of the move, they see inflation ranging between 2.5 to 3 per cent in 2025. BLOOMBERG