KUALA LUMPUR, Feb 22 — United Overseas Bank (Malaysia) Bhd has maintained its inflation forecast of 2.0 per cent for 2019 on the back of a sustained recovery in oil prices, stable broadband prices, potential weather disruptions, and resilient domestic demand.
Senior economist Julia Goh said headline inflation may revert to the previous trend once the high base effect in the transport component recedes and oil prices continue to rise.
“The government has indicated that despite floating petrol prices, the levels will be capped in order to manage cost pressures,” she told Bernama.
The consumer price index (CPI) declined in January, the first in nearly a decade with the overall index decreased 0.7 per cent in January 2019 to 120.5 compared with 121.3 in corresponding month of the preceding year.
The decrease in the index of transport (-7.8 per cent), which contributed 14.6 per cent of overall weight, was countered by the increase in the index of housing, water, electricity, gas and other fuels (+2.0 per cent) and food and non-alcoholic beverages (+1.0 per cent).
“This marks the first decline in CPI since November 2009 amid a steeper drop in the transport component as petrol prices are between 8.0 per cent and 12 per cent lower compared with the same period last year,” said Goh.
She added that food and non-alcoholic beverage prices recorded higher gains owing to higher cost of eating out, meat, fish and seafood, and fruits, while services inflation remained resilient.
UOB expects Bank Negara Malaysia (BNM) to keep the Overnight Policy Rate (OPR) unchanged at 3.25 per cent for now.
“Lingering risks are tilting the growth outlook on the downside. Major central banks have erred on the cautious side and some are taking a pause in rate actions. BNM’s next monetary policy meeting is on March 5,” said Goh.
Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Mohd Rashid also expects the central bank to maintain the OPR at 3.25 per cent in 2019 subjects to the evolving economic outlook.
“As for BNM, lower inflation rate would mean greater room for monetary policy to manoeuvre.
“Essentially, the central bank has the flexibility to reduce the rates if they wish to do so. This is especially true when the US Federal Reserve is also seen to take a long pause in its interest rate hike decision,” he added. — Bernama
