RHB | Malaysia | Inflation Inched Higher To 3.3% Y-o-Y In June, BNM Could Raise OPR Again In 1H2015, 17 July 2014

Economic Research	17 July 2014
Malaysia
Economic Highlights
Inflation Inched Higher To 3.3% Y-o-Y In June, BNM Could Raise OPR Again In 1H2015 The headline inflation rate inched higher to 3.3% y-o-y in June, from +3.2% in the previous month, as preparation for the Ramadhan festivity might have exerted upward pressure on prices. The effect of upward adjustment in administrative pricing following the subsidy rationalisation measures also still linger. Going forward, we expect inflation to moderate but remain elevated in the 2H of the year as higher base effect set in, after picking up in 1H 2014 due to a change in administrative pricing by the Government. Meanwhile, for fear of exerting further pressure on inflation, the Government is considering introducing targeted fuel subsidy scheme instead of cutting fuel subsidy directly. If the former measure is adopted, inflation will likely be lower than our forecast of an average rate of around 3.0-3.4% in 2014, compared with +2.1% in 2013, after factoring in another round of fuel prices hike. Earlier, Bank Negara Malaysia raised the Overnight Policy Rate (OPR) by 25 basis points to 3.25% on 10 July. We believe the OPR will likely be kept at 3.25% for the rest of the year and the OPR could potentially be raised by another 25 basis points in 1H 2015. Economist:  Peck Boon Soon  | +603 9280 2163 Economist:  Shafizal Shafaai  | +603 9280 2179