KUALA LUMPUR, April 25 — OCBC Bank said Malaysia’s inflationary pressures remain benign, with headline inflation averaging 1.7 per cent year-on-year (y-o-y) in the first quarter (1Q2024), below its baseline.

Headline consumer price index (CPI) remained steady at 1.8 per cent y-o-y in March, below the 2.0 per cent consensus expectations, and unchanged from the previous month, the bank said in its global markets research note.

“Core inflation further eased to 1.7 per cent y-o-y in March, compared to 1.8 per cent in February.


“In the coming months, the main risk to inflation will be the timing and mechanism of the government’s fuel subsidy rationalisation policies,” it said.

The bank noted news reports that the government plans to unveil these policies in the coming weeks and will assess their implications accordingly.

“For now, we maintain our 2024 average CPI inflation forecast of 2.5 per cent.


“In terms of monetary policy implications, we maintain our forecast for Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) unchanged at 3.0 per cent for the rest of this year,” it added.

In a separate research note, RHB Investment Bank Bhd maintains its 2024 headline inflation projection at 3.3 per cent y-o-y.

It anticipates the inflation momentum to pick up this quarter following adjustments in the service tax and the rollout of diesel subsidy rationalisation.

“According to our estimates, the proposed fiscal consolidation measures are projected to raise headline inflation by 0.7 to 1.1 per cent.

“At present, we have observed an increase in inflation over the last two months due to upward adjustments in water tariffs for domestic users in Peninsular Malaysia and the Federal Territory of Labuan,” it said, adding that higher water tariffs contributed a 0.2 per cent rise in overall headline inflation.

The bank believed the upside for headline CPI could range between 0.02 per cent and 0.05 per cent for every five per cent increase in water tariff.

Meanwhile, the bank has predicted that diesel prices will be adjusted by June 2024, followed by RON95 in the second half of this year.

Externally, the investment bank remains cautious about the potential upward bias for commodity and food prices, driven by increased demand amid accelerating global activities and risks of oil supply disruption due to geopolitical tensions in the Middle East.

It added that the impact of higher transportation costs on the overall headline inflation momentum could be significant, as transport inflation accounts for 11 per cent of the total CPI basket, with fuel sub-components alone constituting six per cent.

On the OPR, it said an inflation range of 2.0 per cent to 3.5 per cent should provide sufficient room against future price movements.

“BNM might hold its benchmark rate until there is greater clarity over the fuel subsidy reform’s exact timeline and magnitude while assessing the lagged impact on the overall inflationary trajectory and economic momentum,” added the bank. — Bernama