Malaysian Inflation 4.7%, OPR Should Increase Or Not?

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 On a year-on-year basis, Malaysia's August consumer price index (CPI) data has increased 4.7% from 4.4% during July and it is also in line with market consensus projections.


Based on these factors, UOB Global Economics & Markets Research economists predict that Bank Negara Malaysia (BNM) will not be in a hurry with yesterday's policy rate increase (OPR).


It was explained that when compared to inflationary pressure from other regional partners such as Singapore, Malaysia need not worry as the government continues to provide substantial subsidy support.


In addition, the presentation of the 2023 Budget, which will touch on subsidies, is also a factor in reducing concerns about the inflationary pressure.


Hence, UOB analysts believe BNM needs to take careful steps while monitoring the effect of the previous 3 rate hikes of 25 basis points on the economy and inflation in order to make a decision in November.



Please be reminded that the next Monetary Policy Committee (MPC) meeting will take place in early November this year.


In addition, UOB set BNM's OPR outlook at 2.5% for the remainder of the year before continuing rate hikes at 3% by mid-2023.


On the other hand, MIDF Research believes that BNM will raise the OPR by another 25 basis points in November based on Malaysia's core inflation at 3.8% year-on-year during August despite strengthening domestic demand.


He explained that on a monthly basis, core prices continued to achieve positive growth at 0.6%, but food inflation also recorded an increase of 7.2% year-on-year, which contributed to the main factor of the inflation spike.


It is the highest reading ever recorded by the Department of Statistics Malaysia (DOSM).


Also added is the depreciation of the ringgit against the US dollar, adding to food inflation as Malaysia is a major net food importer.


As a result, MIDF predicts that the OPR will be increased in the 2nd half of 2022 with the broader market outlook expected to be bleak.

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