KUALA LUMPUR, June 23 — OCBC Bank expects the headline inflation to ease to 2.9 per cent in 2023 from 3.4 per cent in 2022, while core inflation remains stable at 3.0 per cent.
Senior Asean economist Lavanya Venkateswaran said this is within Bank Negara Malaysia’s (BNM) 2023 forecast of 2.8 per cent to 3.8 per cent range for headline and core inflation, but underscores the stickiness of core inflation relative to headline inflation.
“We assess that the risks to the inflation outlook remain to the upside from adjustments to subsidised fuel and electricity prices, the ongoing El Nino phenomenon and increased geopolitical tensions,” she said in a statement today.
The Department of Statistics revealed that headline inflation eased further in May 2023, with the consumer price index (CPI) easing to 2.8 per cent from 3.3 per cent in the previous month.
On core inflation, it also eased to 3.5 per cent in May from 3.6 per cent in April 2023.
From a monetary policy perspective, Lavanya said, moderating inflation pressures taken together with slowing growth reduces the need for further tightening by BNM.
“As such, we expect BNM to remain on hold at its July 6 meeting and also for the rest of 2023.
“BNM’s tone will, however, remain hawkish considering greater external volatilities from a more hawkish United States Federal Reserve and persistent ringgit depreciation pressures,” she said.
Meanwhile, MIDF Research expects Malaysia’s headline inflation rate to touch three per cent in 2023, higher than its initial forecast of 2.5 per cent.
“The recent market developments, especially the further tightening of monetary policy by major economies, have indirectly delayed the appreciation of the ringgit.
“Hence, the prolonged depreciation in ringgit among others will lead to higher imported inflation particularly via food prices as Malaysia is a net importer of most food products.
“As for non-food inflation, we are confident the government will keep retail fuel prices status quo at least until the end of this year,” it said.
MIDF Research added the steady domestic demand and sticky core inflation may lead BNM to consider raising another 25 basis points in the overnight policy rate, in the second half of 2023.
RHB Research said while maintaining its 2023 headline and core inflation projection at three per cent year-on-year (y-o-y) and 3.5 per cent y-o-y respectively, the research house also expects another 25 bps hike in OPR by July’s Monetary Policy Committee meeting.
“Our view is predicated on three key factors which are core CPI inflation is likely to remain elevated with upside risks to inflation given potential adjustment in subsidies allocations, the nominal effective exchange rate is under pressure and resilient labour market conditions and domestic economy,” it said.
RHB Research said the peak OPR forecast is maintained at 3.25 per cent versus the current 3.00 per cent.
— Bernama
