Malaysia faces deflation risks in the short term – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assessed the recent inflation figures released in the Malaysian economy.

Key Quotes

“Headline inflation decelerated to 1.3% y/y in Feb (from 1.6% y/y in Jan), in line with our estimate (1.4%)… This was largely due to falling prices of selected food items, lower actual housing rental, and cheaper transportation costs as a result of the collapse in global oil prices and the spread of COVID-19 outbreak.”

“Reflecting our downward revision of Brent oil price forecasts for 2020 to an average of USD36/bbl (from USD66.50/bbl previously) as well as depth of expected decline in demand arising from the impact of COVID-19 pandemic and the Movement Control Order (MCO), we slash our 2020 full-year inflation forecast to a 32-year low of 0.5% (from 1.5% previously). We expect some months of deflation or declining CPI before inflation returns to sub 1% in 2H20.”

“PM Tan Sri Muhyiddin announced today (25 Mar) that MCO will be extended by another two weeks until 14 Apr (from 31 Mar), which is expected to further weigh on consumer prices and economic growth. In an effort to mitigate this impact, the government will unveil a broader, second economic stimulus package on 30 Mar. We also expect Bank Negara Malaysia to cut the overnight policy rate by another 50bps in 2Q20, as a global recession is imminent.”