UOB: Malaysia’s inflationary pressures to remain manageable in Q4

KUALA LUMPUR, Oct 22 ― United Overseas Bank (M) Bhd (UOB Malaysia) expects Malaysia's inflationary pressures to remain manageable in the fourth quarter of 2021 (4Q21) as cushioned by government relief measures.

Its senior economist Julia Goh said this will bring UOB Malaysia's full-year inflation outlook to an average of 2.5 per cent, compared to Bank Negara Malaysia’s (BNM) forecast of between 2.0 and 3.0 per cent.

“That said, heading into 2022, upside risks to the inflation outlook have emerged following a global energy crunch, prolonged global supply chain bottlenecks, and labour shortage post-pandemic, which could lead to more persistent inflation and second-round effects,” she said in a research note today.

Goh also said that while utility discounts, fuel and cooking oil subsidies are expected to be extended into 2022, regulators are due to firm up the next base electricity tariff adjustment for the period beginning January 2022 to December 2024 amid surging fuel costs.

“Hence, we reiterate our inflation outlook for 2022 at 2.5 per cent,” she said.

The economist said a nascent domestic economic recovery with lingering downside risks and manageable inflation expectations imply a continuation of accommodative monetary policy stance for the next couple of months.

However, she said expectations of an expansionary budget for 2022, that will be unveiled on October 29, 2021, and Malaysia successfully entering an endemic phase by month-end amid ongoing global monetary policy normalisation have raised the odds for BNM starting to normalise its policy rate in the second half of next year (2H22).

“We project the overnight policy rate (OPR) to remain unchanged until mid-2022, and, thereafter, raised by 25 basis points to 2.0 per cent in 2H22,” she added.

Goh said headline inflation reversed course and edged up to 2.2 per cent year-on-year (y-o-y) last month after easing for four straight consecutive months to a five-month low of 2.0 per cent y-o-y in August.

“The reading also came in a tad higher than our estimate and Bloomberg’s consensus of 2.1 per cent.

“It was primarily due to higher food prices, costlier household maintenance and repairs, as well as last year’s low base effects in electricity and transport components,” she said. ― Bernama

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