Malaysian inflation came in negative in March owing to a sharp decline in transport costs, fallout of the recent decline in global oil prices. On a year-on-year basis, the consumer price index dropped to -0.2 percent in March from prior month’s 1.3 percent. Market expectations were for inflation to come in at -0.1 percent. The transport component negatively contributed 1.3 percentage point to the headline rate. In spite of the sequential fall in food prices, their contributions to the headline index rose a bit. Oil prices continue to be under pressure, implying that transport prices will continue to weigh in on the overall inflation in the months ahead, said ANZ in a research report.

On a month-on-month basis, the Malaysian inflation decreased 1.2 percent in March, owing to a sequential fall of 8.7 percent in the ‘Transport’ component. Meanwhile, prices of food also fell in the month, declining 0.1 percent sequentially. Except the miscellaneous and alcoholic beverages and tobacco components, all other components recorded a fall or no change. Meanwhile, core inflation stayed the same at 1.3 percent on a year-on-year basis in March.

While inflation dynamics are also supportive, helping growth remains the main objective of monetary policy at this stage. The COVID-19 outbreak and the measures taken to contain it have considerably hindered activity. The central bank expects the economic growth range to be between -2 percent and 0.5 percent for 2020.

“BNM cut its policy rate by 25bps in early March and followed up with a 100bps cut to its statutory reserve requirement (SRR). However, given the size of the headwinds faced by the Malaysian economy, we expect the central bank to cut the OPR by another 25bps at its May meeting”, added ANZ.