PETALING JAYA: Putrajaya may be forced to tighten its RON95 subsidy mechanism by either cutting the current 300-litre monthly subsidised quota or raising the pump price back to RM2.05 per litre, analysts say.
They noted that both measures are emerging as realistic policy options if crude oil prices remain elevated and deepen the strain on government finances.
CGS International Research (CGSI Research) said trimming the monthly subsidised quota may offer the government a more targeted way to protect lower income households, while softening the direct impact on the consumer price index (CPI).
The research house added that worsening geopolitical tensions in the Middle East had pushed crude oil prices above US$100 per barrel, raising the likelihood of fresh price pressures.
Similarly, Hong Leong Investment Bank Research said the conflict has tilted Malaysia’s inflation risks more firmly to the upside.
“For now, we maintain our 2026 CPI forecast at 1.7% year-on-year (y-o-y), while closely monitoring the trajectory of global energy prices and government policy response, as we anticipate a potential reversion of RON95 pump prices to RM2.05 per litre should the Middle East conflict persist.”
In a note, CGSI Research said the most immediate impact is likely to come through higher transport costs, with potential spillovers into other segments of the CPI basket.
“Our preliminary calculation indicates that every US$10 increase in average oil prices could add around seven basis points to Malaysia’s annual CPI, assuming no policy changes,” the research house said.
“However, with higher oil prices, the government’s current subsidy programme could face a larger fiscal burden,” CGSI Research said.
“As a result, the government may decide to revise retail fuel prices higher, which could lead to a more significant increase in CPI.
“Alternatively, we think the government could mitigate these pressures by reducing the existing 300‑litre fuel subsidy allocation,” it added.
Looking ahead, there is also an upward risk to the research house’s CPI forecast if damaged Middle Eastern facilities constrain global crude oil supply and keep fuel prices elevated for longer.
According to CGSI Research, it will consider revising its CPI projection in due course. For now, the 2026 forecast is maintained at 1.5%.
In February 2026, Malaysia’s headline inflation moderated to 1.4% y-o-y compared to 1.6% the month before.
Apex Securities Research said the headline inflation averaged just 1.5% in the first two months of 2026, below the 10-year average of 1.8%.
However, rising geopolitical tensions in the Middle East pose upside risks to the inflation outlook. Higher logistics, utility and raw material costs could lift producer prices and gradually spill over into consumer inflation.
The main risk to Malaysia’s inflation outlook comes from the extent of adjustments in domestic fuel prices, which account for 5.7% of the CPI basket.
“Under a scenario where Brent stays around US$101 per barrel through year-end and subsidised RON95 rises to RM2.40 per litre or higher, headline inflation could exceed 3%.”
Such an outcome could raise the prospect of a rate hike by Bank Negara Malaysia, stated Apex Securities Research.
“However, we see this as a low-probability scenario,” the research house said.
“Historically, the highest subsidised RON95 price registered was RM2.38 per litre in November 2017, suggesting limited room for a sharp increase,” Apex Securities Research said.
“We believe the government is unlikely to opt for a large adjustment that would significantly raise household living costs,” it added.
Apex Securities Research pointed out that monetary tightening may not be ideal in a cost- push environment, as it could weigh on household spending and business financing.
