Malaysia: Inflation seen losing upside traction in 2020 – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the recent publication of the inflation figures in Malaysia.

Key Quotes

“Consumer price index (CPI) contracted at the steepest pace in more than five decades by 2.9% y/y in Apr (Mar: -0.2% y/y). This was during the first full month of Malaysia implementing its Movement Control Order (MCO). The decline was much sharper than our estimate (-1.2%) and Bloomberg consensus (-1.6%), largely triggered by falling prices of fuel and non-essential items especially household-related products and services, discount in monthly electricity bills starting 1 Apr, as well as ongoing impact on tourism-related services.”

“Apart from low global oil prices, rising unemployment and subdued consumer spending amid the COVID-19 outbreak and the MCO pushed down overall prices. Headline CPI is expected to decline by -0.5% in 2020 (BNM forecast: -1.5% to +0.5%) with volatile global oil prices being a wildcard.”

“We expect the Overnight Policy Rate (OPR) to stay unchanged at 2.00% for the rest of the year, based on projections for a modest recovery in 2H20. This comes on the back of a progressive pick-up in economic activity with the support of prior interest rate cuts and effective implementation of the MYR260bn fiscal stimulus package. The odds for further rate cuts increase if recession becomes more protracted, potential flare up of infections that warrants a tightening of MCO measures, and weak resumption of activity.”