RAM projects Malaysia's April inflation at 1.5%, sees downside risk to its full-year forecast of 2.3%

TheEdge Tue, May 22, 2018 08:06pm - 5 years View Original


KUALA LUMPUR (May 22): RAM Rating Services Bhd expects Malaysia's headline inflation rate to rise to 1.5% in April 2018, compared to 1.3% in March, mainly due to a reduction in the negative growth contribution of retail fuel.

It noted that the average price of RON95 fuel fell only 0.3% year-on-year (y-o-y) in April, compared to a 4.4% y-o-y decline in March.

On top of that, RAM expects the headline inflation to come in at 2.3% in 2018 compared to 3.7% in 2017.

The new administration's move to zero-rate the goods and services tax (GST) effective June 1 and its proposed intention to maintain the retail fuel price at its current level pose downside risk to RAM's 2.3% headline inflation projection in 2018, the ratings agency said in a statement today.

"These two policies alone (assuming no changes throughout 2H18) are conservatively estimated to reduce headline inflation by 0.7 percentage points," it added.

"That said, the downward pressure could ease with future policy refinements, potentially towards a more targeted fuel subsidy, and depending on the scope of proposed changes to the tax system promised in the ruling Pakatan Harapan coalition's election manifesto," said RAM's head of research Kristina Fong.

On the flipside, Fong said there may also be upside risk from marginal demand-pull inflation, given that a number of the government's election promises are very supportive of private consumption.

"Bank Negara Malaysia (BNM) had maintained the Overnight Policy Rate (OPR) at 3.25% at its last Monetary Policy Committee meeting, but there remain some uncertainties over GDP and inflation outlook, pending the unveiling of other new policies," RAM said.

The rating agency said it will keep abreast of any developments in the policy direction of the new administration and its advisers in its crucial first 100 days.

"We maintain our view that there will [be] no further movement in OPR for now and expect BNM's future actions to be data-dependent," it added.

The Consumer Price Index, which measures inflation, will be released by the Department of Statistics tomorrow.

 

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Comments

Login to comment.