Bank Negara Malaysia likely to maintain OPR at 3.25 pct for rest of this year, says ANZ Research

Bank Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) at 3.25 percent for the rest of this year and the appointment of a new Governor is unlikely to change the central bank’s reaction function, according to a recent report from ANZ Research.

Malaysia’s headline inflation edged up to 1.8 percent y/y in May from 1.4 percent y/y in April. On a sequential basis, headline inflation increased marginally by 0.2 percent m/m after remaining unchanged in April. Food prices, which have remained unusually subdued, recovered somewhat because of Ramadan-related price pressures in May. Meanwhile, core inflation remained at its April level of 1.5 percent y/y.

The headline figure found support from the quarterly adjustment made to the housing sub-index and an unfavourable base effect, especially in transport prices. The transport index, however, remained flat on a sequential basis given that domestic fuel prices were kept unchanged through May.

Festive spending on items such as clothing, durables and furnishing may have been postponed to June, when the zero-rating of GST was effected. However, anecdotal references to discounts offered by retailers suggest that any let-up in demand may have been neutralised.

"Inflation is set to ease further from June when the GST rate, levied previously at 6 percent, becomes zero-rated. However, the impact on CPI will be far less than the 6 percent cut itself as a number of essential items are already GST-exempt (house rents, specific food items, cheaper grade fuels, etc)," the report added.