Inflation pressures to be contained in 2020, says UOB Malaysia

United Overseas Bank (Malaysia) Bhd (UOB Malaysia) said with positive real interest rates, there was room for Bank Negara Malaysia (BNM) to lower the overnight policy rate (OPR) to safeguard domestic growth amid lingering trade uncertainties and muted investments. — Bernama pic
United Overseas Bank (Malaysia) Bhd (UOB Malaysia) said with positive real interest rates, there was room for Bank Negara Malaysia (BNM) to lower the overnight policy rate (OPR) to safeguard domestic growth amid lingering trade uncertainties and muted investments. — Bernama pic

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KUALA LUMPUR, Nov 21 — Despite a higher inflation trajectory in 2020, inflation pressures are expected to be contained by moderate demand, with domestic economic growth projected to slow below Malaysia’s potential output growth of 4.8 to 5.0 per cent in 2020.

United Overseas Bank (Malaysia) Bhd (UOB Malaysia) said with positive real interest rates, there was room for Bank Negara Malaysia (BNM) to lower the overnight policy rate (OPR) to safeguard domestic growth amid lingering trade uncertainties and muted investments.

“As such, we project a 25 basis points cut in OPR to 2.75 per cent in the first quarter of 2020,” said its senior economist Julia Goh in a statement today.

She noted that the floating of fuel pump prices on a gradual basis starting in January 2020, a planned upward adjustment in water tariffs nationwide, and base effects would be key factors lifting inflation in 2020.

“We expect inflation to hover around 1.1 per cent to 1.3 per cent for the remaining two months of 2019, before edging up above 2.0 per cent in 2020. This leaves average full-year inflation at 0.8 per cent in 2019,” said Goh.

Aside from the gradual floating of fuel pump prices, water tariff is also scheduled to increase in stages once the new Tariff Setting Mechanism (TSM) is implemented next year to narrow the disparity between the current water tariff and the true cost of production.

The proposed water tariff increase would be between 7.0 sen and 70 sen per 1,000 litres.

The current tariff is RM1.38 per 1,000 litres of water, compared with the cost of production at RM2.31 per 1,000 litres.

“At this juncture, we expect minimal impact from the scheduled water tariff increase in 2020 given its small weightage of 0.9 per cent in the overall CPI basket,” said Goh. — Bernama

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