PETALING JAYA: The government’s plan to remove blanket fuel subsidies next year will likely increase price pressures but the inflationary effect could be negated by the projected lower oil prices in 2020.
According to Fitch Solutions Macro Research, the average crude oil prices are forecast to decline to US$62 per barrel and US$58 per barrel in 2020 and 2021, respectively.
In comparison, the year-to-date average crude oil price is US$64.13 per barrel.
Beginning January 2020, the government will implement the Targeted Subsidy Scheme (PSP) in Peninsular Malaysia, which will see RON95 and diesel retail prices being gradually floated.
Meanwhile, those in Sabah and Sarawak will continue to enjoy a fuel price ceiling of RM2.08 per litre for RON95 and RM2.18 per litre for diesel.
The PSP has two eligible recipient categories, the first being for Bantuan Sara Hidup (BSH) recipients, where eligible car owners will receive a RM30 monthly subsidy while motorcycle owners will get RM12.
The other category is for non-BSH recipients, who will be given Kad95 which allows them to enjoy the fuel subsidy through a discount of 30 sen per litre.
The subsidised fuel for this category is limited to 100 litres per month for cars, and 40 litres for motorcycles when purchasing RON95.
Fitch Solutions Macro Research said that inflation in 2020 would remain benign, despite an increase in price growth next year.
“We continue to forecast consumer price inflation to average 1.5% year-on-year (y-o-y) in 2020, ” it said, adding that inflation has averaged just 0.6% y-o-y in the first nine months of 2019.
The benign inflation outlook, coupled with Malaysia’s slowing economic growth and a widening key interest rate advantage against the US, offer room for Bank Negara to ease its monetary policy in 2020, pointed out the research firm.
It expects the central bank to cut its benchmark overnight policy rate by 25 basis points to 2.75% in 2020.
“We forecast real gross domestic product growth to slow slightly to 4.5% in 2020, compared to our 4.6% forecast for 2019 and this is largely informed by our less sanguine view on the prospects for a comprehensive and lasting resolution to the US-China trade War, despite recent signs of a thaw in trade relations, ” it said.