Economists forecast headline inflation at 2.5-3.3 pct for 2024, expect OPR to be maintained 

KUALA LUMPUR: Economists are forecasting Malaysia's headline inflation for 2024 to be between 2.5 per cent and 3.3 per cent.

OCBC Global Market Research has forecast the figure at 2.5 per cent, while RHB Investment Bank is projecting 3.3 per cent and MIDF Research 3.2 per cent.

In a statement, OCBC senior Asean economist Lavanya Venkateswaran said the 2.5 per cent forecast implies some pick up in price pressures in the coming months.

She said the inflation outlook hinges on the timeline and mechanism of fuel subsidy rationalisation.

"Notwithstanding (the rise), inflationary pressures will remain manageable. As such, we continue to expect Bank Negara Malaysia (BNM) to keep its policy rate unchanged at 3.00 per cent in 2024," she added.

Earlier today, the Department of Statistics Malaysia announced that the country's headline inflation remained at 1.5 per cent in January 2024 with the Consumer Price Index at 131.4 points against 129.5 a year earlier.

This was slightly below consensus' and OCBC's estimate of 1.6 per cent as well as RHB Investment Bank's (RHBIB) estimate of 1.5 per cent.

Core inflation eased further to 1.8 per cent year-on-year (y-o-y) versus 1.9 per cent in December 2023.

Meanwhile, RHBIB maintained its 2024 headline inflation projection at 3.3 per cent y-o-y, taking consideration the potential upside from the policy manoeuvres amid the fiscal consolidation plan.

"Based on our analysis, fuel subsidy rationalisation and the revision in services tax would have a more significant impact on the inflationary trajectory," it said in its research note.

It said the magnitude of the upside risks would hinge on a few key factors: the effective date of implementation for fuel subsidy rationalisation, the quantum of the prices and tariffs adjustments, and the strength of second-round impacts on the household spending and business costs.

On the external front, RHBIB said it remains cautious about the potential upside bias for commodity and food prices in the upcoming months.

It also opined that the Overnight Policy Rate (OPR) would likely be maintained at 3.00 per cent for 2024 on the caveat that headline inflation falls in the official range of 2.1 per cent to 3.6 per cent.

Meanwhile, MIDF Research expects a gradual pick-up in overall prices in the first half of 2024 following increase in utility charges, implementation of a higher sales and services tax rate at 8.0 per cent (except for food & beverage and telecommunications) and the 10 per cent for low value goods tax.

"In the later half, we opine that it is possible that the roll-out of fuel targeted subsidy may see higher retail fuel prices.

"Moving into 2024, we expect overall inflation rate may register at 3.2 per cent on the assumption that the fuel-targeted subsidy would possibly be rolled-out as early as June 2024," said the research house.

It opined the government may introduce a managed-float price mechanism for RON95 and provide cash assistance to those eligible as guided by the Central Database Hub (Padu) database.

It forecast BNM would keep the OPR status quo throughout 2024.



TAGS: CPI, Inflation, Outlook, 2024, OCBC, RHB Investment Bank, MIDF Research

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