KUALA LUMPUR: Bank Negara Malaysia will likely keep its key interest rate unchanged at 3.00 per cent when announcing its monetary policy decision on Thursday, Standard Chartered (StanChart) said.
Recent developments, however, may have increased the risk of a hike by Bank Negara in late 2024, StanChart added.
The bank said Malaysia's gross domestic product growth for the first quarter of 2024 was resilient at 3.9 per cent year-on-year but lower than it had anticipated as of end-2023.
"Inflation remained benign as of March, despite a 2.0 percentage points increase in the services tax, suggesting limited pass-through. This reflects subdued core inflation," the bank said in a noted today.
Elaborating on the possible late interest rate hike, StanChart said first, the restructuring of the Employees' Provident Fund accounts, which could lead to an estimated RM25 billion (about 1.3 per cent of GDP) of withdrawals, will likely add to demand-driven inflation.
Second, civil service salaries (about 10 per cent of total employed) may be raised by more than 13 per cent from December.
Third, fuel subsidy rationalisation (a well-flagged factor) may be implemented in 2025 or earlier, adding to upside risk.
"We will watch for any tweaks to Bank Negara's inflation outlook to assess the risk of a hike in late 2024. However, this is not our base case at the moment," the bank said.