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Malaysia's headline inflation at 3.7pct in February, beat Bloomberg consensus

Publish date: Fri, 24 Mar 2023, 04:04 PM

KUALA LUMPUR: Malaysia's headline inflation stays at 3.7 per cent in February, matching UOB's expectations but coming in a tad higher than Bloomberg consensus' 3.6 per cent.

This came as the moderation in transport and recreation and culture price inflation counterbalanced the rise in price inflation of other Consumer Price Index (CPI) components particularly food and non-alcoholic beverages, housing, utilities and other fuels, education and restaurants and hotels.

UOB senior economist Julia Goh said backed by year-ago high base effects, a downward trajectory for headline inflation throughout the year remained in sight.

This barred any potential changes in domestic price and subsidy policy that were expected to be implemented gradually in the second haldf of 2023.

Goh said UOB had kept its 2023 full-year average inflation forecast at 2.8 per cent for now (the Finance Ministry's estimate: 2.8-3.8 per cent, 2022: 3.3 per cent).

This is given that inflation risks are capped by ongoing subsidies, existing price controls, remaining spare capacity in the economy, and stable global oil prices.

"Moderating economic growth and abating supply chain pressures will also help to lessen cost or exchange rate pass-through effects in the near term.

"That said, core inflation remains a concern amid a positive domestic growth outlook and expectations of limited effects from global banking woes on Malaysia's financial system," Goh said.

She added that this continued to support its view that Bank Negara Malaysia would deliver its last rate hike of 25 basis points in May, taking the Overnight Policy Rate (OPR) back to the pre-pandemic level of 3.00 per cent and be held for the rest of 2023.

"Nonetheless, the path for global interest rates including Malaysia's OPR has turned more complicated following the fallout in the US and European banking sector, suggesting that caution could prevail and moderating economic conditions may keep Bank Negara on the back burner," Goh said.

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