Malaysian headline inflation likely to have remained stable in August, BNM to cut rate by 25 bps in November

Malaysian inflation data for the month of August is set to release tomorrow. According to a DBS Bank research report, the headline inflation is likely to have remained stable. On a year-on-year basis, the consumer price inflation is expected to have come in at 1.5 percent, only 0.1 percentage points higher than the prior month. Inflation is expected to remain range bound between 1.5 to 2 percent in the months ahead.

As effects from the post-election policy changes, including the zero rating of the GST, subsidies for petrol and removal of toll charges wane from June onwards, inflation has reverted to a more normalized path. This would permit the central bank to shift its attention towards growth. Although GDP growth has accelerated in the second quarter in 2019, that came mainly due to a one-off tax refund for consumers and low base in the same period last year.

“We expect growth momentum could ease in the coming months and this is where we think there is room for monetary policy to turn a bit more accommodative. We continue to expect that Bank Negara would lower the Overnight Policy Rate by 25bps in the next policy meeting in November”, added DBS Bank.