Inflation likely to be under control

The Sun

3 days ago

PETALING JAYA: Bank Negara Malaysia has reaffirmed that the impact of current and upcoming domestic policy reforms on inflation is expected to remain manageable – a view in line with analysts' estimates.
OCBC Bank (Malaysia) Bhd global markets research & strategy senior Asean economist Lavanya Venkateswaran said even if the planned rationalisation of RON95 fuel takes effect in October 2025, with a potential price increase of 20–25%, the adjustment is projected to add only 0.5 percentage points to headline inflation, bringing it to around 2.0% for the year.
She said this moderate level suggests that inflation will stay within a range that allows BNM to maintain a policy stance supportive of economic growth.
'Our GDP forecast for 2025 stands at 3.9% year-on-year, but we expect growth to slow sharply in the first half of the year to 3.6% from 4.3% if the 25% US tariffs are implemented on August 1 without any exemptions.
'We expect this to weigh on domestic demand, which has remained strong in the first half of 2025.
'With inflation likely to stay under control despite subsidy reforms and slower growth, we forecast that BNM will cut the policy rate by another 25 basis points – either at the Sept 4 or Nov 6 meeting – bringing it down to 2.50% by the end of 2025,' Lavanya said in a report.
Meanwhile, BNM has stated that it will continue to take proactive steps to support the country's economic momentum as global growth shows signs of steady expansion.
At its latest meeting, the Monetary Policy Committee (MPC) decided to cut the Overnight Policy Rate (OPR) by 25 basis points to 2.75% yesterday, aiming to create a more supportive monetary environment.
The ceiling and floor rates of the OPR corridor have also been adjusted to 3.00% and 2.50% respectively.
The central bank said the decision reflects an effort to sustain domestic economic resilience, in line with global trends showing continued growth – largely driven by strong consumer spending and, to some extent, early demand brought forward by businesses.
Further, BNM also noted that the global growth outlook would remain supported by positive labour market conditions, less restrictive monetary policy, and fiscal stimulus.
This outlook is weighed down by uncertainties surrounding tariff developments, as well as geopolitical tensions.
Increased volatility in global financial markets and commodity prices could also result from these uncertainties.
For Malaysia, BNM said the latest developments point towards continued growth in economic activity in the second quarter, underpinned by sustained domestic demand and export growth.
Moving forward, the central bank expects resilient domestic demand to support growth.
Employment and wage growth, particularly within domestic-oriented sectors, as well as income-related policy measures, will support household spending.
'The expansion in investment activity will be sustained by the progress of multi-year projects in both the private and public
sectors, the continued high realisation of approved investments, as well as the ongoing implementation of catalytic initiatives under the national master plans,' it said.
Further, the central bank said favourable trade negotiation outcomes, pro-growth policies in major economies, continued demand for electrical and electronic goods, and robust tourism activity could raise Malaysia's export prospects.
However, the growth outlook remains vulnerable to downside risks, primarily due to slower global trade, weakened sentiment, and lower-than-expected commodity production.
Headline and core inflation averaged 1.4% and 1.9% in the first five months of the year, respectively, BNM noted.
Overall, inflation in 2025 is expected to remain moderate amid contained global cost conditions and the absence of excessive domestic demand pressures, it said.
Inflationary pressure from global commodity prices is expected to stay limited, helping to keep domestic cost conditions moderate. In this context, the impact of current and upcoming policy reforms on inflation is likely to remain contained.
BNM said although Malaysia's economy remains resilient, growth prospects could still be affected by external uncertainties.
It said the ringgit's performance will continue to be influenced by global factors, but strong economic fundamentals and structural reforms are expected to provide steady support.
Against this backdrop, BNM's recent rate cut is a pre-emptive move to safeguard growth, with the central bank remaining watchful of risks to both inflation and economic momentum.