KUALA LUMPUR, Sept 18 — RAM Ratings expects Malaysia’s headline inflation rate to moderate to 0.3 per cent in August from 0.9 per cent in July, underpinned by a weaker contribution from the transport fuel component.

Overall inflation is expected to come in at 1.3 per cent for the full year (2017: 3.7 per cent), the rating agency said in a statement today.

It added that the outlook on food inflation appeared to be subdued for the rest of 2018, with the zero-rating of the Goods and Services Tax (GST), coupled with limited impact from the Sales and Service Tax (SST). 

"While the SST is expected to elevate food inflation following the respective lows of 0.8 per cent and 0.7 per cent in June and July (the troughs since November 2009) during the three-month tax holiday, the impact is not expected to be as widespread,” said RAM.

Under the new SST regime, a majority of basic food items were either exempted from the tax or taxed at a lower rate of 5 per cent.

Meanwhile, RAM Ratings expected Bank Negara Malaysia (BNM) to maintain the Overnight Policy Rate (OPR) at 3.25 per cent at its final Monetary Policy Committee (MPC) meeting in November, given the need to balance between capital outflow and Gross Domestic Product (GDP) growth risks.

"It will be a tough call for BNM at future meetings, as the risks weigh on its OPR decision in opposite ways.

"There are still uncertainties which are difficult to fully account for in terms of impact,” said Head of Research Kristina Fong, adding that the volatile global capital markets, rising trade tensions, lingering policy uncertainties and some macro risks might give rise to capital outflows and downside risks against economic growth. — Bernama