Malaysian inflation seen at 2.1% in 2015, BNM to stand pat

Malaysia's inflation was 0.1% y/y in February (January: 1.0%), mildly above our projection of 0.0%, but below the consensus estimate of 0.2%.
 
Inflation remains at its lowest levels since November 2009. Transport inflation remains the key driver of lower inflation, as Ron 95 and diesel prices fell sharply again in February, taking transport inflation down to -11.8% y/y. 

This, however, is likely to be the bottom, as fuel prices moved up in March, and may remain relatively steady in April. Food inflation stayed high in February (2.7% y/y), due to festive season around Lunar New Year. 

Services inflation was steady at 2.8%.
While it has lowered its inflation forecasts, BNM has flagged that inflation will likely trend higher over rest of the year, as per GST implementation in April. But inflation is expected to remain below its historical average and is unlikely to affect the monetary stance, as underlying inflation should remain contained. 

Barcalys notes its views as follows:

• We forecast 2015 inflation at 2.1%, considering the sharp fall in retail pump prices in Q1. 
  
  
• We also expect BNM to keep rates on hold through most of 2015, and forecast only one 25bp rate hike in Q4 15, after the US Federal Reserve has started its own rate hike cycle. 
  
  
• We see risks of this forecast rate hike being pushed out to 2016.