Malaysia’s inflation to average 3% in 2014

Published: Thursday January 30, 2014 MYT 8:56:00 AM 

Updated: Thursday January 30, 2014 MYT 8:58:12 AM

KUALA LUMPUR: RHB Research expects inflation to likely rise to an average rate of 3% in 2014 from 2.1% in 2013 due to the government’s subsidy rationalisation which will spill-over into other end-product and service prices gradually.

The research house said inflation was set to accelerate to 3.5%-3.9% in 2015, the highest since 2008, when the Goods and Services Tax (GST) with a fixed rate of 6% is implemented on April 1, 2015.

“The rise in inflation is mainly policy-induced and Bank Negara Malaysia (BNM), viewing it as a ‘cost-push’ and ‘temporary’ phenomenon, will unlikely use demand management policy and raise interest rates to address it in the near term,” it said.

RHB Research said nevertheless, it believes it is still important for BNM to take a preemptive move to control rising inflationary expectations and given that inflation will be accelerating for two consecutive years in 2014-15.

“As a whole, we expect BNM to increase its Overnight Policy Rate (OPR) by 25 basis points toward late 3Q 2014 to 3.25%, after keeping it unchanged at 3.0% for more than two years,” it said.

On Wednesday, BNM’s Monetary Policy Committee (MPC) opted to maintain the OPR stable at 3.0%, marking the 16th successive meeting it had kept its OPR unchanged.