Inflation will remain high in Malaysia

Malaysia's headline CPI figure for December15 due today is expected to register 3.0% YoY, up from 2.6% in the previous month. While the slump in oil prices is having significant disinflationary impact on many regional countries, it's not quite the case in Malaysia. 

Second order price effects from the introduction of the GST as well as higher imported inflation arising from the weak local currency are probably the reasons behind the elevated CPI figure. And with a bit of low base effect in the coming months, headline CPI inflation will likely stay stubbornly above the 3% level in the first half of 2016. 

However, this is purely technical and transient in nature. Inflation will ease going into 2H16 but will still deliver a full year average inflation of 2.8%, up from a projected 2.1% for 2015

With growth momentum easing and inflation set to be higher, monetary policy will have to track the middle ground. Bank Negara will continue to maintain a stable monetary policy stance. The central bank is expected to keep the Overnight Policy Rate (OPR) at 3.25% for the whole of 2016