22-07-2025
OCBC Lowers Malaysia's 2025 Inflation Forecast To 1.5%
Malaysia's headline inflation continued its downward trend, easing to 1.1% year-on-year (YoY) in June, a dip from 1.2% in May. This figure came in softer than market consensus and OCBC Bank's own projection of 1.2%. Core inflation, however, remained stable at 1.8% YoY.
According to OCBC Bank Malaysia's Senior ASEAN Economist, Lavanya Venkateswaran, the primary drivers behind the subdued June inflation print were a deceleration in the transportation subcomponent (0.3% YoY from 0.7% in May), along with ongoing deflation in communication services (-5.4% YoY from -5.2%) and a moderation in furnishing prices (0.1% from 0.2%). Inflation in key categories such as food (2.1%), utilities (1.7%), education services (2.2%), and insurance (1.5%) remained unchanged from May.
In light of these developments, OCBC has revised its 2025 headline Consumer Price Index (CPI) forecast downwards to 1.5% from a previous estimate of 2.0%. This adjustment is largely influenced by the lower-than-expected inflation rate of 1.4% in the first half of 2025 and 'reduced prospects of RON95 rationalisation,' as the government appears to require a more detailed review of the subsidy mechanism. OCBC had previously factored in a 20-25% increase in RON95 prices from October 2025, an expectation that now seems less likely in the immediate future.
Given the view that Malaysia's Gross Domestic Product (GDP) growth is expected to slow in the second half of 2025 to 3.5% YoY from 4.4% in the first half of 2024, coupled with persistently low inflation, OCBC sees room for further monetary policy easing.
'We have pencilled in another 25 basis points rate cut from Bank Negara Malaysia (BNM) for the remainder of the year,' stated Venkateswaran.
Bank Negara Malaysia's Monetary Policy Committee (MPC) last met on July 9, 2025, where it decided to cut the Overnight Policy Rate (OPR) by 25 basis points to 2.75%. The next MPC meetings are scheduled for September 4, 2025, and November 6, 2025, providing potential windows for further policy adjustments. Related
