KUALA LUMPUR: MIDF Research expects Malaysia’s headline inflation rate to average 2.2 percent this year compared with one percent last year, amid lower base effects.
In a note, the research house said inflationary pressure, mainly from fuel-related items would likely increase, consistent with its expectation on crude oil prices to average higher at US$75 per barrel for 2019 from US$72 per barrel in 2018.
However, it said the core inflation rate is expected to remain steady in 2019, hovering around 2018’s level of one percent year-on-year.
“As core inflation rate remains low, we opine that a change in monetary stance is not required at this juncture, as it would affect the trajectory of domestic growth.
“Furthermore, the US Federal Reserve has confirmed its stance of no rate hikes this year. Since, there will be less pressure from both the domestic and external fronts, we also anticipate that Bank Negara Malaysia will maintain the Overnight Policy Rate (OPR) at 3.25 percent in 2019 barring any surprises in domestic economic growth,” it added.
In a separate note, RHB Research said it expects headline inflation to rise to 1.5 percent for 2019, due to the government’s decision to cap RON95 fuel price at RM2.08, which is lower than last year’s average price of RM2.20.
It said prices in Malaysia fell into deflation in the first two months of 2019, after the government adjusted fuel prices on Jan 1 to reflect the drop in oil prices, which also coincided with the replacement of Goods and Services Tax with a narrower Sales and Services Tax that resulted in subdued inflation pressure.
Despite a more subdued inflation outlook, RHB Research said the latest monetary policy statement in March offered little hint of an OPR cut in the near-term.
On the currency front, it said the ringgit rebounded 1.7 percent against the US dollar year-to-date as at March 26 to RM4.0675 after shedding 1.8 percent for the whole of 2018, as the US dollar pared back some its gains, following a shift in the US monetary policy towards a pause rather than continued hike in rates.
“Looking ahead, our currency strategist expects the ringgit to continue its strengthening path to RM3.80 against the US dollar by end-2019, on the back of expected US Dollar weakness.
“However, a cut in OPR, if it materialises, will likely cap the upside of the ringgit, in our view,” it added. –Bernama
