Malaysian headline inflation rises slightly in April, BNM likely to keep OPR on hold at 3.25 pct through 2018

Malaysian headline inflation strengthened slightly on a year-on-year basis in April. On a sequential basis, the inflation remained the same. The CPI index rose slightly to 1.4 percent year-on-year in April from 1.3 percent in the prior month. In the meantime, core inflation eased to 1.5 percent from 1.7 percent.

Price changes throughout the major components of the CPI basket came in mixed. The prices of five of the 12 major components saw a more rapid rate of rise in March on a year-on-year basis. But, among these, a material rebound was seen in transport costs. Transport costs rose 0.4 percent year-on-year in April, after falling 1.5 percent year-on-year in March and 0.3 percent in February.

Inflation is likely to further ease from June when the GST rate becomes zero-rated, noted ANZ in a research report. Domestic petrol prices, which have been kept unchanged since the end of March, in spite of rising global oil prices, appear set to stay unchanged under the new government. This is preventing higher oil prices from passing through into headline CPI for now.

Malaysian central bank, Bank Negara Malaysia has opined that its earlier projection of 2 percent to 3 percent for this year’s headline inflation is expected to be lowered.

“Taking into consideration the year-to-date reading as well as the emerging downward pressures, we had recently taken off our forecast for a 25bp increase in the OPR in September. The OPR will likely remain at 3.25 percent through 2018. From a regional perspective, we note that Malaysia’s real policy rate of 1.8 percent is now among the highest in the region”, stated ANZ.

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