KUALA LUMPUR, July 23 — RHB Investment Bank (RHB Research) has maintained its headline inflation forecast for Malaysia at -1 per cent this year on weak commodity prices.
In a research note today, it said although commodity prices have improved due to lesser contraction in the transport component, it is still declining year-on-year (y-o-y).
The research house noted that Brent oil prices rose from US$31.60 per barrel in May to US$40 per barrel in June, reflecting the reopening of the economy globally, resulting in a partial recovery in demand for commodities.
“There is also a downside risk to inflation if the number of local COVID-19 infections continues to rise further, which may prompt the government to reintroduce stricter health measures, thereby suppressing demand,” RHB Research said.
Meanwhile, Kenanga Investment Bank has maintained its Consumer Price Index (CPI) forecast for this year at -0.7 per cent on the back of persistent deflationary environment amid fears of a resurgence in Covid-19 infections.
It said year-to-date, CPI fell by 0.8 per cent y-o-y on the impact from the unprecedented measures to curb the COVID-19 pandemic as well as the collapse of oil price.
“Nonetheless, the implementation of the Recovery Movement Control Order (RMCO) from June 10- Aug 31, 2020 is expected to provide some support to prices in the immediate term, although deflation will likely persist on hampered consumer confidence amidst surging unemployment and concerns of a resurgence of Covid-19 infections,” it said in a note today.
On the monetary front, the investment bank said Bank Negara Malaysia (BNM) has ample room to embark on another 25 basis points (bps) Overnight Policy Rate (OPR) cut, bringing it down to 1.50 per cent at the next Monetary Policy Committee meeting in September.
“This is in line with the expectation of subdued inflationary pressure and aggressive monetary easing by central banks of advanced and developing economies, as well as the need for monetary policy to reinforce the fiscal measures deployed under the country's economic stimulus packages,” it said.
The OPR projection was also echoed by AmBank Research, stating that the continued deflationary environment could provide room for another 25 bps OPR cut in September, down from the current 1.75 per cent.
“A cut would provide some comfort to both businesses and households as the six-month moratorium period is expected to end in September.
“A lower borrowing cost will also encourage some pent-up demand,” it added.
In a note today, the research house observed that the nation’s consumer price inflation remained in negative region for the fourth consecutive month in June, falling by 1.9 per cent y-o-y — bringing the first half 2020 average to -0.8 per cent.
“This accounts for 53 per cent of our extreme low full-year projection of -1.5 per cent but slightly below our base full-year projection of -0.6 per cent,” it added. — Bernama
