KUALA LUMPUR, Sept 3 — RHB Research Institute says the government will be able to achieve its budget deficit target of four per cent of gross domestic product (GDP) by this year due to the subsidy rationalisation programme.

The research house also said the move to lower the fuel subsidy by raising petrol and diesel price by 20 sen today would address concerns of international rating agencies over Malaysia’s fiscal position.

The move is expected to save RM1.1 billion for this year and RM3.3 billion per year for the government, which could help reduce its fiscal deficit.

Before the announcement of fuel prices increase, the government had allocated RM24.8 billion of subsidy for fuel this year.

RHB Research also raised its Consumer Price Index (CPI) estimate for this year to 2.2 per cent from the earlier projection of two per cent.

“As the increase in inflation rate was policy-induced, we believe the central bank is unlikely to use demand management policy and raise interest rates to fight inflation,” it said.

Furthermore, it said, Malaysia was still facing downside risk on economic growth emanating from weak global economic recovery.

“As a result, we are keeping our overnight policy rate unchanged at three per cent for the rest of 2013. — Bernama