KUALA LUMPUR - Malaysia's overnight policy rate (OPR) is expected to hold steady at 3.0 per cent throughout 2024, said Public Investment Bank (PIVB) Research.
In a note, the research firm said this is in line with BNM’s view that the current OPR level reflects a supportive monetary policy stance conducive to the economy, in line with the ongoing assessment of inflation and growth prospects.
The central bank projects that headline inflation will hover between 2.0 per cent and 3.5 per cent in 2024, reflecting the incorporation of potential inflationary pressures arising from the implementation of fuel subsidy rationalisation.
"Both domestic policy factors and external influences pose significant upside risks to the inflation outlook.
"Domestically, adjustments to prices of essential items, particularly in energy and food sectors, could elevate prices, especially if blanket fuel subsidies are modified," it said.
Essentially, any adjustments would directly impact headline inflation -- albeit with a likely short-term effect as base effects diminish -- given fuel's substantial share in the consumer price index (CPI) basket.
However, the extent of these risks hinges on potential knock-on effects, as firms may raise prices to offset increased costs, thereby amplifying broader price pressures, said PIVB Research.
"While wage-price dynamics present a potential inflationary tail risk, such second-round effects are deemed minimal in Malaysia due to the alignment of wage increases with productivity growth," it said.
Externally, BNM also emphasised exchange rate fluctuations and global commodity price movements as additional drivers of inflationary pressure.
Meanwhile, persistent factors like geopolitical tensions and weather disturbances could contribute to upward pressure on food inflation.
The CPI experienced a marginal uptick in February 2024, registering a year-on-year (y-o-y) increase of 1.8 per cent following three months of 1.5 per cent growth.
Concurrently, core inflation maintained its stability, recording a y-o-y growth of 1.8 per cent, consistent with January's rate. - BERNAMA