KUALA LUMPUR: CIMB Treasury and Markets Research has projected that Bank Negara Malaysia (BNM) will keep the overnight policy rate (OPR) unchanged at 2.75 per cent this Thursday as easing global oil prices have reduced inflation risks.
The research house said it has lowered its inflation forecast following the United States-Iran ceasefire, reflecting softer Brent crude oil and "crack spread trajectories,” as well as the implementation of the BUDI Diesel programme. It added that lower subsidised diesel prices are expected to shave seven to eight basis points (bps) off inflation over the coming months.
However, the research house cautioned that second-round inflation risks have not disappeared.
"The recent uptick in inflation has remained concentrated in fuel and electricity, while contributions from other components have been stable, indicating the absence of broad-based pass-through," it said in a note today.
Nevertheless, CIMB Treasury and Markets Research said its baseline forecast continues to factor in a 60-70 bps contribution from second-round effects to food and core inflation over the next three quarters. It noted that this is supported by producer price data, which show cost pressures gradually shifting from crude materials to intermediate and finished goods.
It said that sequential producer price index (PPI) data also show that intermediate manufacturing inputs have become a persistent driver of month-on-month producer inflation even as the contribution from crude fuel has largely faded, pointing to lingering upside risks to inflation.
CIMB Treasury and Markets Research noted that past OPR hikes outside monetary tightening cycles occurred against a backdrop of Malaysia's gross domestic product (GDP) growth of above five per cent with headline inflation around or above three per cent. It reckoned that such conditions reflect a combination of inflation, growth and/or financial stability considerations.
"Neither condition is present today, with the inflation outlook softening and the growth outlook still uncertain, albeit with a modest upside bias from exports. Inflation therefore remains the principal source of uncertainty,” it said. - Bernama
