BNM to keep rates on hold through most of 2015

Malaysia's inflation rebounded to 0.9% y/y in March (February: 0.1%), in line with the consensus estimate of 0.9%. The key driver of higher prices was transport, as Ron 95 and diesel prices were revised up in March, taking transport inflation to -4.9% y/y, from -11.8% y/y in February. Transport costs are likely to be steady in April, as petroleum prices were unchanged. Food inflation remains low, at 2.3% y/y, despite adverse weather conditions. Services inflation was steady at 2.7% in March, down marginally from 2.8% in February.

March is the last print before the GST implementation. From April onwards, inflation is expected to increase, as prices adjust in line with GST. BNM has already flagged that inflation will likely trend higher over the rest of the year. 

Given the administrative nature of inflation, it is unlikely to affect the monetary stance, as underlying inflation should remain contained. 

Barcalys forecasts 2015 inflation at 2.1%, considering the sharp fall in retail pump prices in Q1, and says BNM to keep rates on hold through most of 2015, it forecasts only one 25bp rate hike in Q4 15.